LIBRARY 

OF  THE 

University  of  California. 

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An  Analysis  of  the  Banking 

and  Currency  System 

of  tfie  United  States 


INDICATING  THE  CAUSE 
OF  PERIODIC  PANICS  AND 
SUGGESTING    A    REMEDY 


BY  CHAS.  W.  DISBROW 


27 


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Presented  by 

The  United  States  Fidelity  and  Guaranty  Co. 
of  Baltimore,  Maryland 


^ 


ANNOUNCEMENT 


Believing  that  one  of  the  most  important 
subjects  before  the  American  people  to- 
day is  the  reform  of  our  Banking  and 
Currency  System,  we  take  pleasure  in 
presenting  herewith  some  thoughts  on 
the  subject  prepared  by  Mr.  Chas.  W. 
Disbrow,  of  St.  Louis,  Mo.,  manager  of  the 
Missouri  Department  of  this  company.* 
Mr.  Disbrow  has  been  connected  with 
this  company  for  many  years,  and  while 
manager  of  its  Mountain  Department, 
with  headquarters  at  Denver,  Colo.,  was 
empowered  by  it  to  underwrite  bank 
depository  bonds,  guaranteeing  the  sol- 
vency of  banks.  This  brought  him  in 
the  closest  possible  touch  with  the  indi- 
vidual banks  of  the  West,  and  made  him 
familiar  with  the  entire  banking  situation. 
We  believe  his  views  will  be  received 
with  interest. 

THE  UNITED  STATES  FIDELITY 
AND    GUARANTY    COMPANY 

JOHN  R.  BLAND,  President 


Baltimore,  Md.,  December  20,  1909. 


o.'^^P" 


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COPYRIGHT  i9iQ 
BY 

CHAS.  W.  DISBROW 


....INTRODUCTION.... 

This  pamphlet  is  designed  to  show  that  the  periodic  financial  panics 
in  the  United  States  result  from  certain  fixed  and  specific  causes,  and 
that  an  analysis  of  these  causes  indicates  that  the  approach  of  such 
panics  may  be  clearly  noted  and  effectually  prevented. 

It  is  designed  to  show  that  of  the  existing  currency  in  the  nation, 
only  a  portion  finds  its  way  into  the  banks.  That  with  a  given  quantity 
of  currency  in  the  banks  only  a  definite  amount  of  credit  can  be 
extended  by  the  banks.  That  periodically,  owing  to  the  growth  of 
bi^siness  and  the  expansion  of  bank  loans,  the  entire  banks  of  the 
nation  reach  the  extreme  limit  of  their  loaning  capacity  and  can  grant 
no  more  credit,  with  the  result  that  a  ''capital  famine"  ensues,  imme- 
diately affecting  all  branches  of  industry  and  precipitating  a  financial 
panic. 

J  It  is  also  designed  to  show  that  all  of  our  currency  is  based  upon 

and  supported  by  the  gold  in  circulation ;  that  a  given  quantity  of  gold 
will  only  support  a  given  quantity  of  paper,  and  that  we  shall  invite 
commercial  disaster  and  national  dishonor  by  injecting  too  much  paper 
into  our  circulation ;  so  that  there  is  a  definite  limit  to  the  quantity  of 
currency. 

The  amount  of  our  currency  can  not  be  indefinitely  increased,  and  it 
is  therefore  necessary  to  get  the  greatest  possible  use  out  of  the  currency 
that  we  have,  and  to  so  regulate  our  affairs  that  we  shall  get  along  on 
the  credit  that  can  safely  be  granted  with  such  amount  of  currency. 

It  is  the  opinion  of  the  writer  that  the  trouble  with  our  existing 
system  is  two-fold: 

First.  That  there  is  no  machinery  for  the  regulation  and  control  of 
bank  loans  and  credits,  and  no  method  by  which  a  gradual  check  can 
be  placed  upon  the  expansion  of  bank  credits  when  the  reserves  of 
currency  run  low. 

Second.  That  there  is  no  adequate  organization  among  the  banks 
for  mutual  support,  and,  therefore,  each  individual  bank  must  keep  on 
hand  in  a  dead  reserve  fund  too  large  an  amount  of  currency,  with  the 
result  that  the  amount  of  bank  credit  that  can  be  granted  is  unduly 
limited. 

The  remedy  suggested  is  the  creation  of  a  Central  Bank  with 
strictly  limited  powers  which  shall  hold  the  surplus  reserves  of  all  of 
the  banks,  and  also  the  moneys  of  the  National  Government,  and  which 
shall  use  such  moneys  solely  for  the  purpose  of  rediscounting  short- 
term  bank  paper.  This  will  enable  the  individual  banks  to  safely 
operate  on  small  cash  reserves,  as  they  will  be  in  position  to  obtain 
more  currency  instantly  from  the  Central  Bank  while  there  is  any 
surplus  currency  available  in  the  nation;  while  the  Central  Bank,  by 
manipulating  the  rate  of  discount,  can  regulate  and  control  the  entire 


bank  loans  of  the  nation.  The  said  bank  should  have  no  power  to 
issue  paper  money  except  temporary  emergency  paper  strictly  limited 
in  amount. 

The  first  portion  of  this  pamphlet  is  devoted  to  the  study  of  the 
uses  of  currency,  and  the  quantity  needed  to  properly  carry  on  the 
business  of  this  nation;  the  second  part  to  a  discussion  of  what  that 
currency  shall  be  composed  and  the  third  part  to  the  proposed  remedy. 

In  dealing  with  these  questions  the  report  of  the  Comptroller  of 
the  Currency  of  the  United  States  for  1908  is  used,  and  the  figures 
showing  the  condition  of  the  banks  as  of  November  12,  1906,  is  made 
the  basis  of  computation.  A  copy  of  the  material  parts  of  this  report 
is' attached  to  this  pamphlet  for  greater  clearness. 

The  term  currency  is  used  to  include  all  kinds  of  money,  whether 
specie  or  paper. 

In  the  opinion  of  the  writer,  there  is  nothing  vitally  wrong  with  the 
currency  system  of  the  United  States,  and  the  only  changes  in  the 
existing  laws  necessary  to  establish  an  ideal  banking  and  currency 
system  are  to  repeal  the  provisions  of  the  National  Bank  Act  relating 
to  reserves,  to  abolish  the  Independent  Treasury  System,  and  to  create 
a  Central  Bank  with  strictly  limited  powers,  as  above  indicated. 


Quantity 


There  are  two  main  questions  involved  in  the  currency  discussion, 
first  how  much  currency  is  needed  to  properly  carry  on  the  business  of 
the  nation ;  and,  second,  of  what  that  currency  shall  be  composed. 

In  order  to  ascertain  the  quantity  of  currency  needed  it  is  necessary 
to  note  clearly  for  what  purposes  currency  is  used  and  the  exact  work 
it  does. 

From  the  report  of  the  U.  S.  Comptroller  of  the  Currency  it  appears 
that  the  total  currency  of  all  kinds  in  the  United  States  on  November 
12,  1906,  was  a  little  over  three  billion  dollars.  This  currency  was 
divided  into  three  portions  and  served  three  separate  and  distinct 
purposes. 

USES  OF  CURRENCY 

The  first  portion  consisted  of  $325,000,000  lying  in  the  vaults  of  the 
United  States  Treasury  and  its  branches.  This  portion  enabled  the 
government  to  carry  on  an  independent  banking  system  of  its  own  for 
its  own  purposes.  Currency  in  payment  of  taxes  and  customs  is  col- 
lected by  the  government  agents  and  deposited  in  the  Treasury;  and 
payments  by  the  government  are  made  by  drafts  on  the  Treasury.  The 
government  frequently  deposits  with  national  banks  a  portion  of  this 
currency,  but  the  report  of  the  U.  S.  Comptroller  shows  that  at  no  time 
since  1900  has  there  been  less  than  $284,000,000  in  currency  in  the 
Treasury  vaults,  nor  has  it  amounted  to  above  $349,000,000.  The  gov- 
ernment may  or  may  not  really  need  this  vast  amount  of  currency; 
perhaps  it  would  be  very  much  better  if  it  was  in  general  circulation; 
but  the  fact  remains  that  it  has  it,  and  has  had  it  for  many  years.  The 
amount  of  currency  >in  the  Treasury  is  likely  to  be  greatest  during 
times  of  the  greatest  national  prosperity,  because  at  such  times  the 
government  revenues  from  imports  and  internal  taxes  are  the  greatest. 

The  second  portion  consisted  of  $1,733,000,000  in  the  hands  of  the 
people,  in  general  circulation  outside  of  the  banks,  being  $20.48  per 
head  of  population.  This  portion  served  the  purpose  of  a  medium  of 
exchange  for  small  transactions. 

While  the  great  bulk  of  commercial  payments  are  made  with  bank 
checks,  yet  there  are  a  vast  mass  of  petty  transactions  that  call  for  the 
direct  use  of  currency,  and  for  that  reason  every  one  carries  more  or 
less  currency  on  his  person,  and  every  merchant  carries  more  or  less 
currency  in  his  petty  cash  drawer  for  making  change,  etc.  There  is 
also  a  vast  quantity  of  currency  paid  out  daily  for  wages,  and,  while 
this  currency  quickly  finds  its  way  back  to  the  banks,  there  is  always  a 
large  quantity  of  it  afloat  outside  of  the  banks. 

The  more  prosperous  the  times  the  more  currency  the  people  will 
carry  on  their  persons  and  the  more  currency  will  be  afloat  outside  of 
the  banks  for  petty  cash  transactions.     The  men  standing  in  the  bread 


lines  during  hard  times  are  not  likely  to  have  any  currency  in  their 
pockets — the  same  men  working  for  good  wages  during  prosperous 
times  are  very  sure  to  have  some  currency  with  them.  The  amount  of 
currency  that  80,000,000  people  keep  at  all  times  outside  of  the  banks 
is  enormous.  During  the  prosperous  times  of  1893  it  amounted  to 
$16.14  per  head.  During  the  hard  times  following  1893  it  dropped  to 
$13.65  per  head,  and  then  steadily  increased  as  times  became  better, 
being  $17.11  in  1900,  $18.77  in  1904  and  $20.48  per  head,  or  $1,733,- 
000,000  in  1906,  as  above  shown. 

Some  of  this  $20.48  per  capita  may  have  been  ''hoarded,"  but  there 
was  no  apparent  reason  for  people  to  hoard  money  prior  to  November, 
1906,  for  we  were  then  in  the  midst  of  the  most  prosperous  times  the 
world  had  ever  seen ;  stocks  were  at  the  highest  point  and  there  was 
not  a  cloud  on  the  financial  horizon — following  that  date  when  stocks 
began  to  drop  in  value  there  might  have  been  reason  for  uneasiness, 
and  people  might  have  ''hoarded"  their  money,  but  the  reverse  was  the 
case,  because  the  report  of  the  comptroller  for  1907  shows  that  by 
June  30,  1907,  the  amount  of  currency  held  by  the  people  had  dropped 
to  $19.36  per  head,  or  to  $1,686,000,000 — so  that  during  the  very  period 
that  is  is  claimed  the  people  were  "hoarding,"  they  actually  gave  up 
to  the  banks  nearly  $100,000,000.  If  figures  ever  meant  anything,  these 
figures  certainly  disprove  the  charge  that  the  money  stringency  of 
1907  was  caused  by  "hoarding"  by  the  people. 

But  for  whatever  reason  the  people  hold  out  and  keep  afloat  outside 
of  the  banks  this  vast  mass  of  currency — more  than  one-half  the  total 
supply,  the  fact  remains  that  they  do  hold  it,  always  have  held  it  and" 
have  it  now — and  the  more  prosperous  the  times  the  more  they  will 
have. 

The  third  portion  consisted  of  $1,010,000,000  in  the  hands  of  the 
banks,  this  being  the  balance  of  currency  left  after  the  government 
had  taken  what  it  desired  for  its  Independent  Treasury  system,  and 
the  people  had  taken  what  they  desired  for  their  individual  purposes. 
The  banks  are  but  the  custodians  of  the  people's  money  and  have  only 
that  currency  which  is  voluntarily  left  with  them  after  all  other  purposes 
have  been  served ;  hence  the  more  prosperous  the  times  the  less  currency 
the  banks  will  have,  because  it  is  at  such  times  that  the  demands  of  the 
government  and  the  people  are  the  greatest. 

This  currency  in  bank  served  the  purpose  of  a  reserve  for  the  sup- 
port of  the  deposit  liabilities,  and  was  in  fact  the  only  foundation  for 
the  vast  credit  system  of  the  nation. 

It  is  to  be  presumed  that  the  government  had  taken  all  of  the  cur- 
rency that  it  desired  for  its  purposes  because  it  had  to  its  credit  with 
many  banks  large  sums  and  could  have  called  upon  such  banks  for  pay- 
ment of  such  credits  in  currency ;  and  it  is  to  be  presumed  that  the 
people  had  taken  all  the  currency  they  needed,  for  they  could  have 
taken  it  all  had  they  so  desired;  had  the  banks  needed  more  currency, 
however,  they  could  not  have  obtained  same,  as  there  was  no  more 
currency  in  existence. 


The  question  of  how  much  currency  is  needed  in  the  nation,  there- 
fore, can  be  answered  by  ascertaining  whether  the  banks  had,  in  fact, 
a  sufficient  quantity  of  currency  for  all  legitimate  purposes,  and  if  not, 
how  much  more  was  needed  and  for  how  long  a  period.  To  answer 
this  requires  a  brief  analysis  of  the  banking  system. 

"WORKING  CAPITAL" 

Before  the  invention  of  banking  currency  served  but  one  purpose — 
it  was  merely  a  medium  of  exchange  and  was  the  only  such  medium. 
In  every  transaction  calling  for  the  payment  of  money  the  actual 
currency  had  to  be  delivered.  Since  the  invention  of  banking  a  small 
amount  of  currency  in  bank  supports  a  large  volume  of  bank  deposits, 
which  deposits  are,  in  fact,  mere  entries  on  the  books  of  the  banks 
showing  that  the  depositors  are  entitled  to  draw  money  from  the 
banks.  In  the  majority  of  transactions  of  today  calling  for  the  pay- 
ment of  money  a  check  or  order  is  drawn  on  a  bank  which  check  or 
order  is  accepted  in  place  of  currency,  thus  serving  as  a  medium  of 
exchange  the  same  as  currency.  Theoretically,  it  is  currency,  because 
the  banks  will  pay  the  actual  currency  on  demand,  but  practically  no 
currency  is  used — the  check  or  order  goes  through  the  clearing  house 
where  it  is  offset  by  other  checks,  and  the  entire  transaction  is  com- 
pleted by  mere  bookkeeping  entries  without  the  use  of  a  dollar  of  actual 
currency.  The  total  deposits  in  the  banks  of  this  nation,  November,  1906, 
was  $12,000,000,000  and  checks  might  have  been  drawn  and  issued  up 
to  this  amount,  yet  the  banks  had  but  $1,000,000,000  of  actual  currency 
with  which  to  pay  same,  or  about  one  dollar  of  currency  for  twelve  dol- 
lars of  deposits.  Had  this  one  dollar  not  been  there  the  banks  would 
have  been  declared  insolvent  and  the  entire  $12,000,000,000  of  deposits 
would  have  been  wiped  out,  yet  with  the  machinery  the  banks  have 
devised  whereby  one  check  is  offset  by  other  checks,  and  through  the 
universal  use  of  banks  by  the  people  and  the  confidence  the  people  have 
in  the  banks,  this  one  dollar  of  currency  is  found  ample  to  support  this 
twelve  dollars  of  deposits ;  hence  while  a  dollar  of  currency  in  the  hands 
of  the  government  or  the  people  can  do  only  the  work  of  a  dollar,  a 
dollar  of  currency  in  bank  may  support  and  keep  at  work  twelve  other 
dollars. 

A  bank  deposit  is  a  potential  medium  of  exchange,  because  a  check 
can  be  issued  up  to  the  amount  of  such  deposit  and  will  be  accepted  in 
place  of  currency.  The  total  amount  of  the  available  medium  of  ex- 
change in  the  nation  is  the  bank  deposits  against  which  checks  may  be 
issued,  plus  the  currency  in  the  hands  of  the  people.  This  medium  of 
exchange  may  be  termed  "working  capital." 

Business  can  not  be  carried  on  without  the  use  of  "working  capital." 
No  merchant  can  carry  on  a  business  without  an  adequate  amount  of 
currency  or  credit  balance  at  the  bank  against  which  he  can  draw.  It 
is  immaterial  how- much  real  estate  or  other  kind  of  wealth  he  may 
possess — he  can  not  pay  his  bills  and  meet  his  payrolls  without  actual 
currency  or  bank  credit.  -He  can  not  pay  wages  with  stocks  and  bonds 
or  with  promissory  notes,  nor  can  he  pay  for  material  with  deeds  to 
real  estate.     The  amount  of  business  a  merchant  can  transact  is  strictly 


limited  by  the  total  amount  of  currency  or  bank  credit  he  has ;  and  it 
follows  that  the  amount  of  business  that  can  be  transacted  in  a  nation  is 
strictly  limited  by  the  total  amount  of  currency  and  bank  credit  in  such 
nation.  A  merchant  possessing  but  $10,000  in  currency  and  bank  credit 
can  not  transact  a  Marshall-Field  business — and  a  nation  of  merchants 
with  little  currency  or  bank  credit,  like  Italy,  can  not  do  a  United 
States  business. 

Without  "working  capital"  business  must  practically  cease.  The 
great  bulk  of  our  "working  capital"  consists  of  bank  deposits.  Bank 
deposits  are  mere  entries  on  the  books  of  the  banks.  Let  us  see  how 
these  entries  come  to  be  made. 

HOW  BANK  DEPOSITS  ARE  CREATED 

When  an  individual  deposits  to  his  credit  in  bank  a  check  drawn  to 
his  order  by  another,  his  individual  bank  credit  is  thereby  increased, 
but  the  bank  credit  of  the  individual  drawing  the  check  is  correspond- 
ingly decreased — the  banks  merely  make  entries  on  their  books  credit- 
ing the  first  depositor  and  debiting  the  second — the  sum  total  of  the 
bank  deposits  of  the  nation  has  not  been  changed  by  the  transaction. 
Hence  it  is  seen  that  no  matter  how  many  checks  are  drawn  against 
bank  deposits  and  redeposited  in  the  same  or  other  banks,  the  sum  total 
of  bank  deposits  is  not  increased  or  diminished  by  a  dollar ;  neither  will 
the  withdrawal  of  currency  from  one  bank  and  its  redeposit  in  another 
affect  the  sum  total  of  deposits. 

But  when  a  bank  grants  a  loan  or  discount  to  its  customer  the 
amount  of  such  loan  or  discount  is  at  once  placed  to  the  credit  of  such 
customer  on  the  books  of  the  bank,  and  thereby  the  bank  deposits  have 
become  increased  by  the  amount  of  the  loan.  If  the  customer  issues 
checks  against  this  deposit  such  checks  will  be  redeposited  to  the  credit 
of  someone  else,  or  if  he  draws  out  the  cash  it  will  naturally  flow  back 
through  the  channels  of  trade  into  some  bank,  as  a  deposit,  so  that  so 
long  as  the  loan  remains  unpaid  the  bank  deposits  of  the  nation  will  be 
increased  liy  the  amount  of  the  loan. 

The  same  effect  is  produced  if  the  bank  invests  its  general  funds  in 
securities  or  commodities.  Money  so  paid  out  by  the  bank  will  flow 
back  into  some  bank  as  a  new  deposit,  but  will  not  be  charged  against 
any  existing  deposit. 

Creating  or  importing  new  money  and  depositing  it  in  bank  will, 
of  course,  increase  the  deposits  by  such  amount,  but  this  forms  but  an 
immaterial  part  of  the  deposits  of  the  nation.  The  great  bulk  of  the 
deposits  are  due  to  existing  unpaid  bank  loans  and  discounts  and 
investments  made  directly  by  banks  in  the  purchase  of  securities, 
commercial  paper,  etc. 

A  LIMIT  TO  THE  EXPANSION  OF  BANK  CREDIT 

The  amount  of  the  bank  deposits  of  the  nation  therefore  depends 
upon  the  amount  of  bank  loans  and  bank  investments ;  but  such  loans 
and  investments  can  not  be  made  indefinitely.  No  matter  what  secur- 
ity is  offered  or  how  enticing  the  terms,  there  is  a  limit  to  the  amount 


of  bank  loans  and  bank  investments,  and  hence  there  is  a  corresponding 
limit  to  the  amount  of  ''working  capital"  that  can  be  created. 

It  is  the  object  of  every  banker  to  loan  out  or  invest  the  money  m 
his  charge  in  order  that  it  may  bring  a  return  to  the  bank  in  the  form 
of  interest,  but  the  banker  can  not  loan  out  or  invest  every  dollar  placed 
with  him  by  his  depositors  ;  he  must  keep  on  hand  sufficient  currency 
to  meet  the  daily  demands.  This  is  termed  a  reserve.  The  amount  of 
reserve  that  a  bank  will  carry  depends  upon :  first,  the  law,  if  any,  gov- 
erning the  bank;  and  second,  the  policy  of  the  bank.  All  national 
banks  and  the  state  banks  of  some  States  are  compelled  by  law  to  keep 
a  certain  definite  amount  of  currency  on  hand  for  every  dollar  of 
deposits  on  the  books,  ranging  from  six  cents  in  country  districts  to 
twenty-five  cents  in  central  reserve  cities.  Such  legal  reserve  is  abso- 
lutely dead  currency  and  can  not  be  used  at  any  time,  no  matter  what 
the  needs  of  the  banks  or  the  demands  of  the  depositors.  So  such  banks 
must  keep  a  sufficient  amount  of  currency  on  hand  in  addition  to  the 
legal  reserve,  to  sei-ve  as  a  working  capital  of  their  own.  Banks  not 
handicapped  by  a  reserve  law  can  use  every  dollar  of  the  reserve  in  case 
of  emergency  (which  is  what  a  reserve  should  be  for),  and,  therefore, 
need  not  keep  so  large  an  amount  of  dead  currency  on  hand ;  neverthe- 
less, every  bank  must  keep  on  hand  actual  currency  proportioned  to  the 
amount  of  its  deposit  liabilities.  It  is  immaterial  how  much  money  the 
bank  may  have  deposited  to  its  credit  with  some  other  bank — the  point* 
is  that  it  must  keep  in  its  own  vaults  a  certain  amount  of  actual  cur- 
rency for  "every  dollar  of  deposit  liabilities. 

Every  banker  must  decide  for  himself,  based  on  his  knowledge  of 
the  probable  needs  of  his  customers  at  different  seasons  of  the  year, 
just  how  much  cash  reserve  he  will  carry.  If  he  carries  too  much  he 
will  lose  interest  on  same;  if  he  carries  too  little  he  will  be  unable  to 
meet  the  daily  demands  of  his  customers  and  is  liable  to  have  a  run  on 
the  bank.  Whatever  he  carries  will  be  dead  currency — ''tied  up" — 
locked  in  the  bank  vaults  and  not  usable. 

The  bank  deposits  are  mere  entries  on  the  books  of  the  bank,  but  for 
every  dollar  so  entered  the  banks  must  hold  in  their  vaults  a  certain 
amount  of  actual  currency;  so  that  if  the  deposits  in  a  bank  grow  to 
such  a  point  that  all  the  currency  in  that  bank  is  tied  up  as  a  reserve, 
that  bank  can  make  no  more  loans.  It  follows  that  if  the  deposits  in  all 
the  banks  of  the  nation  grow  to  such  a  point  that  all  the  currency  in  all 
the  banks  is  tied  up  for  reserve,  then  none  of  the  banks  can  make  any 
loans ;  and  if  no  loans  can  be  made  the  deposits  can  not  increase  further 
and  no  more  "working  capital"  can  be  created.  Hence,  the  amount 
of  bank  loans  and  discounts  that  can  be  granted  and  the  amount  of 
bank  deposits  that  can  be  created  is  strictly  limited  by  the  amount 
of  currency  in  bank. 

RELATION  BETWEEN  CURRENCY  AND  BANK  CREDIT 

The  fact  that  currency  is  constantly  flowing  into  one  window  of  a 
bank  and  flowing  out  of  another,  day  after  day,  leads  many  to  think, 
in  a  hazy  way,  that  there  is  a  great  stream  of  currency  of  indefinite 
extent  that  may  be  dipped  into  at  will  by  any  one  who  has  the  proper 


security  to  offer  in  exchange ;  but  when  we  examine  the  statistics  and 
note  that  there  is  only  a  certain  definite  supply  of  currency;  that  for 
many  years  past  there  has  always  been  a  large  part  of  it  tied  up  in  the 
vaults  of  the  government;  that  the  reports  sent  to  the  U.  S.  Comp- 
troller four  times  a  year  for  many  years  show  an  enormous  and  steadily 
increasing  amount  always  in  the  hands  of  the  people  outside  of  the 
banks ;  and  when  we  realize  that  the  government  can  not  be  forced  to 
give  up  the  currency  it  holds  and  that  the  amount  in  the  hands  of  the 
people  is  too  widely  distributed  in  too  small  amounts  to  be  available,  the 
fact  is  borne  in  upon  us  that  instead  of  a  stream  of  currency  of  indefinite 
extent  the  only  currency  available  for  those  needing  it,  no  matter  what 
gilt-edged  security  they  have  to  offer  for  it,  is  the  actual  currency  in 
banks. 

There  is  also  a  popular  impression  that  there  is  no  limit  to  the  ex- 
pansion of  bank  loans  and  that  any  one  at  any  time  can  get  any  bank 
loan  desired  providing  he  has  the  proper  collateral ;  but  we  have  seen 
that  no  individual  bank  can  grant  a  loan  unless  it  has  sufficient  available 
currency  on  hand  over  and  above  its  reserve ;  and  it  follows  that  the 
collective  banks  of  the  nation  cannot  grant  a  loan  if  there  is  no  loose 
cash  in  any  of  the  banks  over  and  above  the  reserve. 

Because  the  bank  account  of  an  individual  is  increased  largely 
through  his  thrift  and  ability  to  make  a  profit  from  his  business  dealings 
it  seems  to  be  presumed  that  an  increase  in  the  total  bank  deposits  of  the 
nation  indicates  general  thrift  and  general  profit-making.  But  a  mo- 
ment's thought  will  show  that  ^^hatever  profit  one  makes  must  be  paid 
for  by  some  other ;  and  it  certainly  requires  no  argument  to  prove  that 
the  total  bank  deposits  of  the  nation  are  not  increased  or  diminished  by 
the  mere  transferrence  of  a  bank  deposit  from  one  individual  to  another 
individual  or  from  one  bank  to  another  bank. 

It  will  be  seen,  therefore,  that  there  is  an  intimate  relation  be- 
tween (l)  currency  in  bank,  (2)  percentage  of  cash  reserve  held 
against  deposits,  (3)  bank  loans  and  discounts  and  bank  investments, 
and  (4)  bank  deposits.  A  change  in  any  one  of  these  items  produces 
a  direct  effect  upon  the  other  three.  Bank  deposits  cannot  increase 
unless  bank  loans  and  discounts  are  granted  or  direct  investments 
are  made  by  the  banks.  The  banks  cannot  make  such  loans  and 
discounts  or  investments  unless  (a)  there  is  currency  in  bank  over 
and  above  what  is  needed  for  reserve,  or  (b)  the  percentage  of  cash 
reserve  held  against  deposits  is  reduced,  thus  releasing  the  cash  from 
the  reserve  chests  and  making  it  available  for  loans.  Inversely,  if 
bank  loans  are  paid  off,  the  bank  deposits  are  correspondingly  de- 
creased, and  this  releases  currency,  from  the  reserve  fund,  and  such 
currency  is  at  once  available  for  further  loans. 

The  quantity  of  currency  needed  in  the  nation  therefore  depends 
upon  the  amount  of  "working  capital"  needed  in  the  nation.  To  increase 
the  "working  capital^"  it  is  necessary  to  increase  the  bank  loans  in  order 
that  the  deposits  may  increase.  Increase  in  deposits  calls  for  a  propor- 
tionate increase  in  the  reserve.  Reserve  means  currency.  Hence,  if 
bank  loans  are  to  be  increased  indefinitely,  then  the  quantity  of  currency 

10 


OF 


must  be  increased  indefinitely.  If  bank  loans  are  not  to  be  increased 
then  no  more  "working  capital"  can  be  created.  Without  an  increase 
in  "working  capital"  the  business  of  the  nation  cannot  expand. 

CONDITION  PRECEDING  THE  PANIC  OF  1907 

Was  the  i,oio  million  dollars  in  the  hands  of  the  banks  in  Novem- 
ber, 1906,  a  sufficient  quantity  of  currency  to  enable  the  banks  to  create 
as  much  "working  capital"  as  was  then  needed  to  meet  the  legitimate 
demands  of  business  ? 

The  report  of  the  U.  S.  Comptroller  of  the  currency  for  1908,  shows 
that  on  November  12,  1906,  the  banks  of  the  nation  had  practically 
reached  a  state  of  deadlock — that  is  to  say,  their  deposits  had  increased 
to  such  an  extent  that  nearly  all  the  currency  in  bank  was  tied  up  for 
reserve  and  there  was  little  or  no  currency  available  for  loans  or  invest- 
ments ;  therefore  no  more  "working  capital"  could  be  created.  On  page 
212  of  said  report  is  a  statement  showing  the  deposits  in  the  various 
classes  of  national  banks,  the  cash  reserve  required  by  law  to  be  held 
against  such  deposits  and  the  actual  currency  in  the  banks.  From  this 
it  will  be  noted  that  all  the  National  Banks  in  the  three  Central  Reserve 
Cities  (New  York,  Chicago,  and  St.  Louis)  had  deposit  liabiHties  of 
$1,128,900,000,  against  which  the  reserve  required  to  be  held  in  cash 
was  $278,300,000  and  that  the  actual  currency  in  the  hands  of  such 
banks  was  $281,800,000,  so  that  these  banks  had  but  $3,500,000  of 
money  they  could  use  over  and  above  the  dead  reserve  that  could  not  be 
used.  This  $3,500,000  was  the  total  working  capital  of  sixty-one  of 
the  Nation's  greatest  banks  in  the  three  -financial  centers  of  the  United 
States.  It  was  all  these  banks  had  to  meet  the  daily  demands  of  their 
customers.  If  they  had  made  loans  of  only  $14,000,0^,  thereby 
increasing  their  deposits  that  much,  they  would  have  had  no  working 
capital  left  and  the  withdrawal  of  any  currency  by  a  depositor  would 
have  impaired  the  legal  reserve  apd  made  the  banks  technically 
insolvent. 

It  is  seen  therefore  that  these  great  banks  had  reached  the  practical 
limit  of  their  loaning  capacity  and  could  create  no  more  "working  capi- 
tal" unless  (a)  they  could  get  more  currency,  or  (b)  they  were  per- 
mitted to  operate  on  a  smaller  percentage  of  cash  reserve. 

It  will  also  be  noted  that  all  the  National  Banks  in  the  other  re- 
sen^e  cities  (293  banks  in  about  forty  cities)  had  deposit  liabilities  of 
$1,372,500,000  against  which  the  cash  reserve  (12^/^%)  required,  was 
$165,400,000,  and  that  such  banks  actually  had  but  $167,400,000,  or  only 
two  million  dollars  of  working  capital  over  and  above  the  reserve. 
Had  loans  of  only  $8,000,000  been  made,  this  working  capital  would 
have  been  tied  up  in  the  reserve. 

Hence  it  follows  that  all  the  national  banks  of  the  principal  cities 
of  the  nation  had  practically  reached  the  limit  of  their  loaning  capacity, 
unless  (a)  they  could  get  more  currency,  or  (b)  the  percentage  of  cash 
reserve  had  been  decreased. 

It  will  also  be  noted  that  all  other  national  banks  in  the  nation  ( 5845 
in  number)  had  deposits  of  2468.5  million  dollars  against  which  a  cash 
reserve  of  13 1.5  million  dollars  (6%)  was  required,  and  that  the  banks 

11 


actually  had  185.3  niiHion  dollars  of  currency,  leaving  only  53.8  million 
dollars  as  a  working  capital  for  nearly  six  thousand  banks,  an  average  of 
less  than  $10,000  per  bank,  and  an  average  reserve  of  only  seven  and  a 
half  dollars  of  cash  for  every  one  hundred  dollars  of  deposit  liabilities. 
Will  any  sane  man  claim  that  the  practical  loaning  capacity  of  these 
banks  had  not  been  reached,  unless  (a)  they  could  get  more  currency, 
or  (b)  the  percentage  of  cash  reserve  had  been  decreased  ? 

The  same  report,  page  31,  gives  a  statement  of  ''Consolidated 
returns  from  State,  Savings,  Private  Banks  and  Loan  and  Trust 
Companies"  as  of  the  year  1906,  but  not  as  of  any  specified  date  in  said 
year.  From  this  it  appears  that  the  total  cash  on  hand  in  such  banks 
was  334.9  million  dollars  which  supported  deposits  of  8,159.8  milHon 
dollars  or  an  average  of  four  dollars  in  cash  for  every  one  hundred 
dollars  of  deposits.  Is  it  not  apparent  that  these  banks  had  reached  the 
limit  of  their  loaning  capacity,  unless  they  could  get  more  currency? 

Many  eminent  financiers  have  contended  that  the  cash  reserves  of 
the  banks  were  entirely  too  low  at  that  time,  and  that  in  the  future  the 
banks  should  be  compelled  by  law  to  maintain  greater  cash  reserves. 
Without  going  into  the  question  it  is  quite  apparent  that  the  cash 
reserves  of  the  banks  of  the  nation,  taken  as  a  whole,  were  as  low  as  they 
could  go  in  safety,  and  hence  the  banks  could  make  no  more  loans.  It 
follows  that  the  bank  deposits  could  not  be  further  increased. 

Hence,  in  November,  1906,  the  entire  banks  of  the  nation  had 
reached  a  state  of  deadlock — they  could  get  no  more  currency,  there 
being  none  except  that  held  tightly  by  the  Government  and  by  the 
people;  without  currency  they  could  make  no  loans  or  investments; 
unless  bank  loans  and  investments  were  made  the  bank  deposits  could 
not  increase,  and  no  more  "working  capital"  could  be  created. 

We  have  now  shown  that  the  quantity  of  currency  needed  in  this 
nation  depends  upon  the  amount  of  "working  capital"  that  is  needed 
in  the  nation,  the  said  "working  capital"  consisting  principally  of  bank 
deposits  created  by  bank  loans ;  and  have  also  shown  that  on  November 
12,  1906,  the  banks  of  the  nation  had  reached  the  limit  of  their  capacity 
to  make  loans,  and,  therefore,  no  more  "working  capital"  could  be 
created,  forcing  the  business  of  the  nation  to  get  along  on  the  "working 
capital"  it  had,  about  $14,000,000,000. 

CAUSE  OF  PANIC  OF  1907 

The  sole  question  in  the  case,  therefore,  is  was  there  enough  "work- 
ing capital"  at  that  time  and  what  was  the  effect  of  shutting  off  the 
supply  of  new  "working  capital." 

At  that  time,  November  12,  1906,  the  great  wave  of  •business  expan- 
sion and  development  that  had  started  about  1900  had  brought  about 
the  greatest  era  of  prosperity  the  nation  had  ever  known.  Factories 
were  working  night  and  day  creating  stocks  of  merchandise,  new  fac- 
tories were  being  erected,  great  irrigation  works  were  being  con- 
structed, every  railroad  was  improving  its  roadbed  and  purchasing  new 
rolling  stock,  new  railrqads  were  being  constructed  in  every  part  of  the 

12 


nation,  the  demand  for  laborers  was  so  great  that  wages  were  advanc- 
ing in  every  branch  of  industry,  and  the  daily  payroll,  paid  mostly  in 
currency,  was  steadily  increasing  in  amount. 

All  of  this  new  work  required  "working  capital.''  To  meet  the 
demand  the  banks  had  been  steadily  increasing  their  loans  and  direct 
investments  and  the  bank  deposits  had  grown  steadily  larger.  The 
new  currency  created  during  this  period  was  but  $775,000,000,  but  the 
banks  had  expanded  their  loans  and  investments  to  such  an  extent  that 
the  bank  deposits  increased  from  $7,235,000,000  in  1900,  to  $12,196,- 
000,000  in  1906,  or  about  $5,000,000,000.  But  as  the  times  became 
more  prosperous  the  government  drew  more  and  more  currency '  into 
the  vaults  of  the  national  treasury,  piling  up  over  $300,000,000  of  it, 
thus  sucking  the  life  blood  from  the  arteries  of  trade.  The  people 
receiving  more  wages  than  ever  before,  were  carrying  a  steadily  increas- 
ing amount  of  currency  on  their  persons,  as  it  was  perfectly  natural  and 
proper  for  them  to  do.  ,  So  the  banks  found  it  increasingly  difficult  to 
retain  currency  at  the  very  time  that  the  bank  deposits  were  expanding 
and  the  needs  of  the  currency  for  the  reserve  chests  was  increasing. 

The  tim.e  finally  came,  as  it  mu^t  always  come  in  .every  great  wave 
of  business  expansion,  when  all  the  currency  the  banks  had  or  could 
obtain  from  any  source  was  tied  up  in  the  reserve  chests  and  every 
bank  in  the  nation  had  to  cease  making  loans.  Immediately  there  arose 
a  cry  of  ''money  stringency"  and  it  was  alleged  that  the  people  were 
''hoarding."  The  newspapers  took  up  this  cry  and  implored  the  people 
to  give  up  their  currency.  The  people  responded  to  this  cry  and 
actually-gave  up  to  the  banks  over  $100,000,000  of  currency,  reducing 
their  pfcr  capita  holdings  from  $20.48  to  $19.36.  The  banks  used  this 
additional  currency,  to  increase  the  loans,  so  that  bank  deposits  were 
expanded  another  $500,000,000,  but  the  demand  for  "working  capital" 
was  greater  than  the  supply.  All  over  the  nation  there  was  partially 
completed  work  that  could  not  be  left  in  its  uncompleted  state  and  had 
to  have  "working  capital"  to  complete  it.  Stocks,  bonds  and  other 
securities  were  offered  for  sale  in  great  quantities  by  those  who  had  to 
have  "working  capital"  at  any  price,  with  the  result  of  greatly  depress- 
ing the  quoted  prices  for  such  securities  on  the  stock  exchange.  This, 
in  turn,  not  only  created  a  feeling  of  fear  and  unrest  among  the  people, 
but  constantly  decreased  the  loaning  value  of  all  kinds  of  collateral. 
A  movement  of  this  kind  can  not  go  far  without  culminating  in  a  finan- 
cial panic,  and  the  panic  of  1907  followed.  This  panic  was  the  natural, 
necessap^  and  inevitable  consequence  of  the  business  of  the  nation 
expanding  to  such  a  point  that  the  existing  "working  capital"  of  the 
entire  nation  was  exhausted  and  it  had  to  have  more  "working  capital," 
while  no  more  could  be  created  because  as  much  had  already  been 
created  as  the  currency  in  bank  would  support,  and  the  banks  could 
get  no  more  currency.  Five  thousand  million  dollars  of  "working  capi- 
tal" had  been  created  by  the  banks  in  six  years,  but  James  T.  Hill,  in 
the  spring  of  1907,  in  a  public  speech  stated  that  the  railroads  alone  at 
that  time  needed  $1,000,000,000  more  to  complete  work  already  under 
way. 

13 


PERIODIC  PANICS  DUE  TO  THE  EXHAUSTION  OF  BANK  CREDIT 

This  nation  is  subject  to  periodic  panics  which  invariably  occur 
during  times  of  the  greatest  prosperity  and  as  a  culmination  of  an  era 
of  expanding  business.  There  should  be  no  mystery  about  these  panics 
— they  are  the  natural  and  logical  consequences  of  our  banking  and 
currency  system;  and  the  coming  of  such  panics  can  be  foretold  with 
mathematical  certainty  if  the  figures  showing  the  movements  of  cur- 
rency are  available.  When  this  nation  gets  into  one  of  its  booms  of 
expansion  and  development  the  demand  for  ''working  capital"  is  enor- 
mous. The  banks  supply  this  "working  capital"  either  by  direct'  pur- 
chase of  stocks,  bonds,  commercial  paper,  etc.,  or  by  making  loans  to 
the  promoters  of  new  enterprises,  or  by  making  loans  to  third  parties 
who  invest  in  such  new  undertakings.  Finally  the  time  comes  when 
the  banks  can  make  no  more  loans  and  the  supply  of  working  capital 
,  is  suddenly  shut  off  without  notice.  It  is  this  sudden  check  that  pro- 
duces the  panic.  In  England  they  know  just  how  far  loans  can  expand, 
and  they  regulate  them  so  that  the  supply  of  "working  capital"  is  shut 
off  gradually,  as  hereafter  explained. 

There  is  one  other  phase  of  this  subject  which  should  be  clearly 
understood.  When  a  person  buys  something,  giving  in  exchange  for 
it  either  currency  or  a  bank  check,  he  has  thereby  converted  his  "work- 
ing capital"  into  fixed  capital,  but  the  said  "working  capital"  has  passed 
into  the  hands  of  another,  and  is  just  as  good  and  usable  in  such  new 
hands  as  it  was  before,  so  that  at  the  very  time  of  the  panic  of  1907 
there  was  in  existence  over  $14,000,000,000  of  "working  capital"  that, 
if  it  could  have  been  applied  where  it  was  needed,  would  have  avoided 
the  panic. 

We  have  shown  that  part  of  the  currency  itself  was  tied  up  in  the 
reserve  chests  of  the  banks,  and  in  the  government  vaults,  and  the 
balance  of  it  was  so  widely  distributed  in  such  small  quantities  among 
our  80,000,000  people  as  to  be  unavailable.  It  can  also  be  shown  that 
the  existing  bank  deposits  of  the  nation  were  also  "tied  up." 

It  is  to  be  noted  that  the  banks  themselves  can  not  touch  the  bank 
deposits — only  the  individual  owners  of  the  deposits  can  use  same. 
Very  few  men  keep  idle  in  bank  a  larger  sum  than  they  deem  neces- 
sary to  meet  their  current  demands.  When  a  merchant  finds  that  his 
balance  is  larger  than  he  is  likely  to  need  for  sometime  he  looks  about 
for  an  investment  in  order  that  he  may  receive  a  return  in  interest.  It 
is  to  be  presumed,  therefor,  that  the  great  bulk  of  the  credit  balances 
at  the  banks  in  November,  1906,  was  required  by  its  owners  for  the 
current  needs  of  such  owners.  If  the  owners  of  these  bank  deposits 
refused  to  issue  checks  against  same  they  could  not  be  used.  A  bank 
deposit  that  its  owner  won't  use  is  just  as  effectively  tied  up  as  is  cur- 
rency in  the  reserve  fund  of  a  bank  that  the  bank  can't  use.  Currency 
is  "hoarded"  when  its  possessor  puts  it  in  a  secret  place  instead  of 
depositing  it  in  bank  or  permitting  it  to  flow  out  into  the  channels  of 
trade ;  and  a  bank  deposit  is  just  as  effectively  hoarded  when  its  owner 
refuses  to  draw  a  check  against  it — in  either  event  working  capital  is 
tied  up. 

u 


At  that  time  tliere  was  over  $3,000,000,000  of  deposits  in  sav- 
ings banks,  credited  on  the  books  of  said  institutions  to  their  many 
thousand  depositors.  Had  ^hese  depositors  purchased  stocks  and  bonds 
or  real  estate,  paying  for  same  with  checks  or  orders  drawn  on  the  said 
savings  bank,  there  would  have  been  no  ''working  capital  famine;"  on 
the  contrary,  the  prices  of  stocks  and  bonds  would  have  soared  upwards. 
But  these  depositors  could  not  be  induced  to  part  with  their  savings. 
This  is  shown  by  the  fact  that  during  the  winter  and  spring  of  1907 
while  stocks  and  bonds  were  oflfered  at  bargain  prices  the  savings 
deposits  actually  increased,  as  shown  by  the  report  of  the  Comptroller. 
This  is  a  perfect  illustration  of  how  bank  deposits  may  be  "tied  up" 
or  "hoarded." 

In  order  to  meet  the  legitimate  demands  of  the  expanding  business 
of  the  nation  for  "working  capital"  it  is  not  only  necessary  that  there 
shall  be  enough  of  such  "working  capital,"  but  that  it  shall  be  available 
for  the  use  of  those  who  require  it  and  have  proper  security  to  offer  in 
exchange.  The  $3,000,000,000  of  savings  banks  deposits  held  by 
thousands  of  small  depositors  who  are  notoriously  skeptical  of  stocks, 
are  certainly  not  available  for  the  use  of  a  railroad  promoter,  no  matter 
how  good  a  proposition  he  may  have.  We  know  from  experience  that 
the  large  business  enterprises  of  the  nation  must  look  to  the  banks  them- 
selves for  their  supply  of  "working  capital." 

When  the  banks  can  make  no  more  loans  the  main  supply  of  "work- 
ing capital"  is  cut  off.  While  individuals  all  over  the  nation  may  have 
surplus  credit  at  the  bank  and  are  in  position  to  purchase  stocks,  bonds, 
etc.,  or  make  loans,  yet  it  is  difficult  and  impracticable  to  reach  such 
parties;  and  it  may  be  safely  stated  that  under  our  present  system 
when  the  banks  of  the  nation  reach  the  limit  of  their  loaning  capacity 
a  financial  panic  will  follow. 

The  quantity  of  currency  that  is  needed  in  this  nation  depends  there- 
fore upon,  first,  the  amount  the  government  requires  for  its  independent 
^ub-treasury  system  which  averages  close  to  $300,000,000.  Second,  the 
amount  the  people  hold  for  their  individual  needs  outside  of  the  banks, 
apparently  about  $20.00  per  capita.  Third,  the  amount  the  banks  must 
have  for  reserve  against  deposit  liabilities.  The  amount  the  banks  will 
need  for  reserve  depends  upon  the  amount  of  bank  loans  and  invest- 
ments, and  these  in  turn  depend  upon  the  demand  for  "working  capital" 
to  carry  on  the  business  of  the  nation. 

If  the  demand  for  "working  capital"  is  unlimited,  then  bank  loans 
must  be  granted  indefinitely.     If  bank  loans  are  granted  indefinitely' 
then  the  quantity  of  currency  must  be  expanded  indefinitely,  because  a 
bank  loan  means  a  bank  deposit,  a  bank  deposit  means  reserve,  and 
reserve  means  currency. 

If  the  quantity  of  currency  is  limited  then  the  bank  loans  must  be 
limited,  the  quantity  of  "working  capital"  limited  and  the  business  of 
the  nation  must  be  limited. 

16 


Quality 


The  only  real  money  in  the  leading  commercial  nations  today  is 
gold — all  other  forms  of  money  are  mere  promises,  express  or  implied, 
to  pay  gold. 

Silver  might  just  as  well  have  been  chosen  to  serve  as  money,  but 
as  it  was  not  chosen,  it  is  not  money.  It  is  a  mere  commodity.  A 
silver  dollar  would  not  pass  current  at  its  face  value  were  it  not  for  the 
implied  promise  of  the  government  to  give  a  gold  dollar  in  exchange. 

Gold  and  silver  were  once  used  together  as  money  and  there  was 
no  practical  objection  to  this  in  the  days  before  the  invention  of  banking, 
as  in  those  more  or  less  primitive  days  the  slight  fluctuation  in  the  rela- 
tive value  of  the  two  metals  was  not  of  prime  importance,  but  since  the 
invention  of  banking  one  dollar  of  currency  in  bank  supports  an  aver- 
age of  twelve  dollars  of  deposits,  and  every  fluctuation  in  the  value  of 
that  dollar  is  multiplied  twelve  or  more  times.  If  the  depositors  of 
the  banks  were  permitted  to  demand  payment  of  such  deposits  in  either 
gold  or  silver,  at  their  pleasure,  when  the  deposits  themselves  consist 
of  mere  bookkeeping  entries,  created  through  extending  bank  loans, 
the  slightest  fluctuation  in  the  market  value  of  the  two  metals  would  be 
of  the  utmost  consequence  to  the  banks. 

The  banks  owe  depositors  $12,000,000,000  and  have  but  $1,000,- 
000,000  of  currency  with  which  to  pay.  If  the  depositors '  had  the 
right  to  call  for  either  gold  or  silver  at  their  pleasure,  then  the  slightest 
variation,  real  or  imagined,  in  the  relative  values  of  the  metals  would 
have  a  tendency  to  cause  depositors  to  withdraw  from  bank  the  dearer 
metal — and  anything  that  tends  to  withdraw  currency  from  bank  is  to 
be  deplored.  Such  withdrawals  can  not  be  carried  very  far  without 
producing  a  financial  panic  as  it  is  impossible  to  pay  $12,000,000,000 
of  deposits  with  $1,000,000,000  of  currency. 

VALUE  OF  GOLD  DOES  NOT  FLUCTUATE 

A  dollar  will  not  purchase  as  much  today  as  it  did  twenty  years  ago. 
This  has  led  to  a  theory  that  on  account  of  the  increased  production  of 
gold  it  is  getting  cheaper.  There  is  nothing  in  this  theory,  but  it  will 
be  advisable  to  dispose  of  it.  Gold  has  a  fictitious  value  and  is  the  only 
commodity  that  has  such  fictitious  value.  The  leading  nations  have 
agreed  that  a  certain  number  of  grains  of  gold  shall  constitute  a  unit 
of  value.  In  America  this  unit  is  termed  a  dollar.  This  unit  is  a  mere 
measure  of  value.  If  a  bushel  of  wheat  is  priced  at  one  dollar  and  a 
day's  wages  at  three  dollars,  this  means  that  the  relative  value  of  a  bushel 
of  wheat  to  a  day's  wages  is  as  one  to  three.  If  the  nations  should 
decide  to  increase  or  diminish  the  number  of  grains  of  gold  in  a  dollar 
this  would  not  have  the  slightest  effect  upon  the  relative  value  of  wheat 
to  wages.  If  the  producer  of  gold  could  take  such  gold  to  a  jeweler 
and  sell  it  for  more  dollars  than  it  would  represent  if  it  was  minted  into 
coins  then  trouble  would  ensue  instantly,  but  while  the  leading  nations, 
the  jewelers  and  gold  dealers  and  the  people  agree  that  a  certain  num- 
ber of  grains  of  gold  shall  constitute  a  unit  of  value,  and  the  raw  gold 

16 


is  purchased  and  sold  in  terms  of  these  same  units,  it  is  a  theoretical 
impossibility  that  there  should  be  the  slightest  fluctuation  in  the  price 
or  value  of  gold. 

REASON  FOR  HIGH  PRICES  OF  COMMODITIES 

The  reason  that  the  purchasing  capacity  of  a  dollar  is  not  as  great 
today  as  formerly  is  not  far  to  seek. 

If  $100,000,000  of  new  currency  is  created  (either  gold  or  paper) 
and  placed  in  bank,  what  is  the  effect  ?  The  bank  will  not  permit  it  to 
lie  idle — it  will  be  loaned  out  that  it  may  earn  interest.  The  borrowers 
must  use  the  money  so  borrowed  so  that  it  will  produce  enough  to  pay 
the  interest  to  the  bank  and  a  profit  for  themselves ;  hence  they  use  it 
in  productive  work,  such  as  the  construction  of  railroads,  factories, 
mills,  machinery,  etc.,  and  when  it  has  thus  all  been  expended  for  labor 
and  material  entering  into  such  construction  they  go  back  to  the  bank 
to  borrow  more.  Meanwhile  the  money  so  expended  to  the  wage 
earners  and  material  men  has  either  at  once  been  deposited  back  in  bank 
by  such  parties  to  their  own  credit  or  has  been  expended  by  them  to 
merchants  and  others  for  necessities,  etc.,  and  the  merchants  will  have 
deposited  it  back  in  the  bank,  for  the  natural  flow  of  money  is  from 
the  bank  out  as  a  loan  and  back  to  the  bank  as  a  deposit.  The  banks 
are  constantly  paying  out  money,  but  money  is  constantly  being  rede- 
posited  and  the  amount  of  money  that  remains  in  the  hands  of  the 
people  outside  of  the  banks  fluctuates  very  little  from  week  to  week. 

Hence,  when  the  borrowers  come  back  to  the  banks  for  more  loans 
the  original  currency  borrowed  by  them  is  back  in  bank  ready  to  be 
again  loaned  out  and  again  used  for  further  construction.  The  process 
of  loaning  out  money  and  receiving  it  again  might  be  kept  up  indefi- 
nitely were  it  not  for  the  necessity  of  holding  a  cash  reserve  in  bank 
against  deposits.  If  all  of  the  banks  were  operating  on  a  25%  reserve, 
as  the  Central  Reserve  Banks  do,  then  the  loans  could  continue  until 
the  deposits  had  reached  $400,000,000,  at  which  time  the  loans  would 
cease,  as  the  entire  $100,000,000  of  currency  would  be  tied  up  for 
reserve.  If  all  llie  banks-  operated  on  a  4%  reserve,  as  the  loan  and 
trust  companies  did,  then  the  loans  might  continue  until  the  deposits  ' 
amounted  to  $2,500,000,000  before  the  $100,000,000  of  currency  would 
be  tied  up  for  reserve.  As  some  of  our  banks  operate  on  one  per- 
centage of  reserve  and  some  on  another,  it  is  impossible  to  tell  the  exact 
figure  to  which  loans  and  deposits  will  grow  from  the  creation  of  a 
given  amount  of  currency,  but  the  actual  figures,  November,  1906,  show 
$12,000,000,000  of  deposits  to  $1,000,000,000  of  currency  in  bank. 
The  average  in  this  nation,  therefore,  seems  to  be  about  12  to  i.  In 
England  it  is  16  to  i. 

Hence,  the  effect  of  creating  more  currency  is  to  put  twelve  times 
such  amount  to  work  in  productive  enterprises,  thereby  creating  a 
demand  for  labor,  increasing  the  price  paid  for  labor ;  thereby  through 
the  increased  purchasing  power  of  the  wage  earners  increasing  the 
demand  for  goods  and  thus  naturally  increasing  the  price  paid  for 
such  goods. 

17 


The  currency  in  this  nation  increased  from  $2,339,000,000  in  1900 
to  $3,115,000,000  in  1907,  an  increase  of  $775,000,000;  and  the  bank 
deposits  increased  during  the  same  period  from  $7,688,000,000  to 
$13,654,000,000,  or  nearly  $6,000,000,000,  of  which  $5,000,000,000 
represent  bank  loans  and  bank  investments. 

It  is  hardly  necessary  to  advance  arguments  to  show  the  effect  upon 
prices  of  putting  $5,000,000,000  to  work.  Everyone  knows  what  hap- 
pened during  the  period  betwen  1900  and  1907.  Constructive  work 
was  going  on  in  all  directions  and  the  demand  for  labor  became  so  great 
that  wages  advanced  in  all  lines  of  work — the  common  laborers,  the 
foremen,  the  superintendents,  the  clerks,  the  managers  and  so  on  up 
the  line  all  got  better  jobs  and  better  pay  than  they  had  before. 

If  10,000,000  workmen  and  their  families  who  are  eating  meat  but 
once  a  week  because  they  can  not  afford  more,  suddenly  have  their 
incomes  increased  so  that  they  eat  meat  seven  times  a  week,  what  is 
the  effect  upon  the  price  of  beef  ?  Until  the  supply  regulates  itself  to  the 
increased  demand  the  price  will  necessarily  be  very  high. 

The  market  for  goods  depends  upon  the  inclination  of  the  individual 
to  buy  and  his  ability  to  purchase.  The  ability  of  an  individual  to 
purchase  depends  upon  his  income  or  his  accumulated  wealth.  The 
man  without  wealth  or  income  can  purchase  nothing,  no  matter  what 
his  inclination.  The  wage  earners  receiving  but  a  small  stipend  per 
week  must  deny  himself  all  the  luxuries  and  many  of  the  necessities  of 
life.  Increase  his  wages  and  he  is  instantly  able  to  pay  more  rent,  eat 
better  food  and  buy  better  clothes,  etc.,  thus  extending  the  market  for 
these  goods.  The  United  States  is  the  greatest  market  in  the  world 
because  the  wages  are  the  highest  and  therefore  the  purchasing  ability 
of  the  people  greatest.  China  is  a  poor  market  because  its  teeming 
millions  of  people  receive  no  wages  worthy  of  the  name  and  they  there- 
fore have  not  the  ability  to  purchase. 

The  selling  price  of  an  article  is  governed  by  the  law  of  supply 
and  demand ;  the  cost  of  an  article  merely  governs  the  volume  of  pro- 
duction. The  producer  sells  his  wares  at  the  highest  price  he  can  get ; 
if  this  price  is  greater  than  the  cost  to  him,  his  interest  lies  in  greater 
production,  if  the  price  is  less  than  the  cost  he  naturally  stops  the 
production. 

An  increase  in  the  wages  paid  necessarily  increases  the  cost  of  pro- 
ducing goods,  and  the  selling  price  must  be  advanced  to  cover  this 
increased  cost.  If  the  goods  will  not  sell  at  the  increased  cost  produc- 
tion will  instantly  cease,  thus  cutting  off  the  supply.  With  the  supply 
cut  off  the  demand,  if  there  is  any,  will  exhaust  the  existing  stock  on 
hand,  and,  if  the  demand  continues,  the  selling  price  will  necessarily 
rise  until  it  will  be  profitable  to  again  produce. 

The  effect  of  the  general  increase  in  wages,  therefore,  is  two- fold : 

First,  it  necessarily  increases  the  selling  price  by  the  amount  of  the 
extra  cost  of  the  labor  entering  into  the  production  of  the  goods. 

Second,  it  increases  the  buying  capacity  of  the  wage-earner,  thereby 
increasing  the  demand  for  goods. 

18 


If  the  demand  is  only  slightly  above  or  below  the  supply  it  will 
have  a  great  effect  upon  the  price.  It  is  a  well-known  principle  that 
''the  surplus  governs  the  price."  The  American  manufacturer,  know- 
ing this,  dumps  his  surplus  on  the  foreign  market,  at  cost  or  below, 
so  as  to  maintain  high  prices  in  America.  Were  the  surplus  dumped 
on  the  American  market  the  price  would  instantly  fall.  A  slight  de- 
ficiency in  the  supply  has  the  immediate  effect  of  putting  up  prices,  and 
the  stronger  the  demand  the  higher  the  price  will  go. 

The  price  of  most  commodities  has  advanced  since  1900,  not  in 
leaps  and  bounds,  but  gradually,  a  few  pence  at  a  time,  the  producers 
carefully  feeling  the  demand. 

High  prices  today  are  maintained  by  the  enormous  demand  created 
by  the  great  buying  capacity  of  the  American  people.  Cut  down  to 
the  average  of  the  year  1894  the  rate  of  wages  and  the  proportionate 
number  of  men  employed,  and  the  price  of  wheat  will  drop  to  the  price 
of  those  days. 

An  increase  in  the  volume'  of  currency,  therefore,  whether  it  be  gold 
or  paper,  if  that  currency  is  put  to  work,  will  decrease  the  purchasing 
power  of  a  dollar  because  it  will  increase  wages  and  the  price  of  all 
articles  produced  by  labor,  and  the  increase  in  the  income  of  the  people 
will  vastly  increase  their  capacity  to  buy  and  thus  create  a  larger 
demand  and  broader  market  for  all  lines  of  goods.  The  demand  for 
currency  and  working  capital  in  this  nation  of  wonderful  and  undevel- 
oped resources  is  usually  equal  to  the  supply,  and  is  likely  to  continue 
to  be  while  we  have  land  to  be  irrigated,  swamps  to  be  dramed,  canals 
to  be  dug,  waterways  to  be  dredged,  railroads  to  be  built,  etc.  Hence, 
the  practical  effect  of  increased  production  of  gold  is  to  decrease  the 
purchasing  power  of  a  dollar,  because  such  gold  tends  to  increase  the 
supply  of  money,  but  it  is  a  very  vital  point  to  note  the  decreased  pur- 
chasing power  of  the  unit  is  not  due  to  any  change  in  the  value  of  gold 
constituting  that  unit,  but  simply  to  the  increased  supply  of  working 
capital  that  has  been  put  to  work.  It  would  be  very  disquieting  if  the 
value  of  our  gold  was  decreasing,  for  we  can  not  control  the  production 
of  gold,  but  we  can  control  the  volume  of  working  capital ;  in  fact,  it 
will  regulate  itself,  for  when  all  the  work  is  done  the  loans  will  naturally 
be  paid  off,  the  deposits  thereby  being  decreased  and  the  currency  will 
simply  lie  idle  in  bank.  It  isn't  the  mere  volume  of  currency  that  has 
any  effect  on  prices — it  is  the  putting  of  that  currency  to  work,  so  that 
men  are  employed  at  wages  that  enables  them  to  buy. 

INSUFFICIENT  QUANTITY  OF  GOLD 

If  gold  is  the  only  real  money  why  should  anything  else  be  used  for 
money  ?    The  only  possible  answer  is  that  there  isn't  enough  gold. 

The  total  amount  of  gold  produced  in  the  United  States  from  1792 
to  1906  was  but  $2,800,000,000,  so  that  if  every  dollar  of  this  had  been 
coined  and  was  still  extant  we  still  would  not  have  enough,  as  our 
present  supply  of  currency  is  over  $3,000,000,000.  If  we  should 
attempt  to  substitute  gold  for  our  $665,000,000  of  national  bank  notes 
where  would  we  get  this  gold?     There  is  no  available  supply  of  gold 

19 


anywhere  in  the  world.  Every  ounce  of  gold  ever  produced  has  either 
been  used  as  money  or  gone  into  the  arts — there  isn't  enough  gold 
money  now  and  there  is  no  way  of  getting  any  of  the  gold  back  that 
went  into  the  arts.  It  certainly  is  not  practicable  to  get  gold  rings, 
watches,  plate,  etc.,  from  the  people  and  melt  them  down.  The  gold 
that  is  being  produced  now  is  not  sufficient  to  supply  the  demands  for 
new  currency.  In  1906  there  was  produced  in  the  entire  world  gold 
valued  at  $4IO,ooo,cxxd  and  the  amount  actually  coined  was  $411,000,000 
in  that  same  year,  while  there  was  also  issued  a  large  quantity  of  paper 
currency,  showing  that  the  demand  for  currency  was  greater  than  the 
supply  of  gold.  We  added  to  our  supply  of  currency  from  1900  to 
1908  over  $1,000,000,000,  an  average  of  about  $120,000,000  per  year. 
There  was  produced  of  gold  in  the  United  States  in  1907  but  $130,- 
000,000  of  gold.  Thirty  million  dollars  of  this  went  into  the  arts,  leav- 
ing but  $100,000,000  for  coinage,  or  $20,000,000  less  than  needed.  We 
must  face  the  situation,  therefore,  that  there  is  not  enough  gold  to  even 
supply  our  demands  for  new  currency,  and  it  is  utterly  impossible  to 
ever  substitute  gold  for  our  present  unsecured  paper.  We  have  enough 
gold  to  redeem  our  outstanding  paper,  if  the  demarid  for  redemption 
does  not  come  too  fast,  but  to  do  so  would  cut  in  half  our  quantity  of 
currency.  There  are  over  $3,000,000,060  of  uncovered  paper  in  the 
leading  commercial  na^tions,  as  per  report  of  U.  S.  Comptroller,  1908, 
p.  489,  and  these  nations  are  struggling  to  increase  their  gold  reserves. 

PAPER  MONEY 

If  there  is  not  sufficient  gold  to  supply  the  increasing  demand  for 
currency,  then  token  or  paper  currency  must  be  issued  as  a  substitute. 
A  certain  amount  of  paper  can  be  kept  afloat  if  backed  by  a  reserve  of 
gold,  on  the  same  principle  that  enables  the  banks  to  maintain  twelve 
dollars  of  deposits  on  one  dollar  of  reserve.  The  amount  of  paper  that 
can  be  kept  afloat  depends  on  the  amount  of  gold  reserve  held  against  it, 
and  the  credit  of  the  issuer. 

A  bank,  as  a  rule,  can  maintain  and  keep  afloat  a  greater  portion  of 
paper  to  gold  reserve  than  can  a  government,  because  the  government 
uses  such  issue  of  paper  to  pay  its  general  expenses  and  for  other  non- 
productive purposes,  and  if  its  gold  reserve  becomes  impaired  it  has 
no  way  of  replenishing  it  except  through  taxation  or  borrowing ;  while 
a  bank  uses  such  paper  only  for  loans  and  investments  and  in  case  of 
need  can  collect  in  the  loans  or  sell  the  investments. 

Most  financiers  will  admit  that  two  dollars  of  paper  can  be  kept 
afloat  indefinitely  with  one  dollar  of  gold  reserve ;  possibly  three  might 
be  kept  afloat.  Four  is  a  practical  impossibility  without  suspending 
specie  payment  altogether.  It  is  immaterial  how  strong  may  be  the 
credit  of  the  issuer  of  the  paper — when  the  paper  is  presented  for  pay- 
ment the  gold  must  be  there  to  meet  it — if  it  isn't  there,  there  is  a  sus- 
pension of  specie  payment  and  immediate  derangement  of  the  money 
market. 

20 


CURRENCY  OF  THE  UNITED  STATES 

In  this  nation  about  half  our  currency  is  gold  and  the  other  half 
is  paper  and  silver.  The  government  issued  $346,ooo,ocxd  of  paper 
termed  United  States  notes  or  greenbacks  against  which  it  keeps  at  all 
times  a  gold  reserve  of  $150,000,000.  Considering  the  limited  quantity 
of  the  issue,  the  heavy  gold  reserve,  and  the  great  strength  of  the 
government  there  can  be  no  question  that  these  greenbacks  will  be 
maintained  at  face  value. 

The  government  also  keeps  afloat  about  $700,000,000  of  silver — 
by  an  implied  promise  that  gold  will  be  exchanged  for  it  on  demand. 
No  specific  gold  reserve  is  maintained  to  make  this  promise  good,  but 
there  is  usually  about  $200,000,000  or  more  of  gold  in  the  vaults  of 
the  Treasury  in  the  general  fund  that  could  be  used  for  this  purpose. 

The  national  banks  of  the  nation  have  issued  $665,000,000  of  paper, 
termed  national  bank  notes,  which  are  ba'cked  by  the  credit  of  the 
individual  banks  and  by  a  deposit  of  bonds  of  the  U.  S.  Government. 

While  no  specific  gold  reserve  is  required  to  be  held  against  these 
notes  the  national  banks  are  required  to  hold  a  very  large  reserve  of 
lawful  money  against  their  deposits,  and  they  usually  have  on  hand 
about  $450,000,000  or  more  in  gold.  It  is  true  that  this  reserve  serves 
the  double  purpose  of  supporting  hbth  deposits  and  bank  notes  and  that 
in  case  of  emergency  it  can  not  be  used  for  either  purpose;  but  the 
fact  remains  that  the  gold  is  there  and  while  it  is  there  the  bank  notes 
will  probably  pass  current  at  par.  Remove  that  gold  and  all  the  credit 
of  the  banks  and  the  government  combined  won't  keep  the  bank  notes 
afloat  without  suspending  specie  payment  altogether.  '    , 

In  England  in  normal  times  practically  every  dollar  of  paper  issued 
is  backed  by  a  dollar  in  gold  deposited  in  the  Bank  of  England.  In 
case  of  sudden  emergency  when  more  currency  is  instantly  necessary 
the  bank  is  empowered  to  issue  half  a  billion  dollars  of  paper  tem- 
porarily. A  very  much  larger  issue  could  be  made  with  safety  because 
of  the  great  reserve  of  gold  in  the  bank  to  support  it. 

In  this  nation  we  keep  afloat  in  normal  times  about  as  much  paper 
as  the  gold  on  hand  will  support  safely,  hence  in  times  of  emergency 
it  is  difficult  and  dangerous  to  issue  much  more  paper. 

There  can  be  no  question  about  the  quality  of  currency.  It  must 
be  gold  or  a  promise  to  pay  in  gold ;  and  the  promises  can  not  be  made 
good  without  an  adequate  gold  reserve  to  redeem  such  promises  as 
fast  as  they  are  presented. 


21 


The  Trouble  and  the  Remedy 

There  is  nothing  vitally  wrong  with  our  currency.  It  would  be 
better  if  it  was  all  gold,  but  in  view  of  the  limited  supply  of  gold  that 
is  impossible.  But  even  as  it  is,  about  50%  of  it  is  gold  and  that  is 
ample  to  support  it  all  except  under  most  unusual  circumstances.  But 
it  certainly  will  be  inviting  disaster  to  inject  much  more  paper  into  our 
circulation.  The  arguments  against  greenbackism  are  just  as  potent 
today  as  they  were  forty  years  ago.  Neither  will  it  be  possible  to 
obtain  a  sufficient  quantity  of  gold  to  supply  all  the  demands  for  new 
currency  in  view  of  the  determined  struggle  every  nation  is  making 
to  strengthen  its  gold  reserve.  It  is  utterly  impossible  for  the  nation? 
to  ever  substitute  gold  for  the  $3,000,000,000  of  uncovered  paper  and 
the  best  they  can  do  will  be  to  strengthen  their  gold  reserves  so  as  to 
be  able  to  redeem  such  paper  as  is  presented  for  payment. 

Hence  it  follows  that  we  should  get  the  utmost  possible  service  out 
of  the  currency  we  have.  That  is  just  what  we  do  not  do,  but  that  is 
not  the  fault  of  the  currency ;  it  is  the  fault  of  the  Banking  System. 

THE  DISEASE 

The  trouble  with  our  banking  system  is  two  fold. 

First,  we  have  no  way  of  controlling  and  regulating  bank  loans. 

A  giv^n  amount  of  currency  in  bank  will  only  support  a  given  amount 
of  deposits,  and  hence  only  a  given  amount  of  bank  loans  can  be  granted. 
If  every  individual  bank  loans  until  it  can  loan  no  more  without  any 
reference  to  the  condition  of  the  money  market,  then  we  must  continue 
to  have  periodic  panics,  for  the  time  will  always  come  in  this  nation  df 
expanding  and  developing  business  when  every  bank  in  the  nation 
reaches  the  limit  of  its  loaning  capacity,  and  when  that  point  is  reached 
business  receives  such  a  sudden  check  that  disaster  must  follow.  A 
brake  must  be  put  on  loans,  so  that  they  may  be  brought  to  a  stop  grad- 
ually and  not  in  the  form  of  a  head-on  collision. 

In  England  the  reserves  of  the  different  banks  are  largely  carried 
with  the  Bank  of  England.  When  that  bank  sees  the  loans  expanding 
too  fast  so  that  the  deposits  are  getting  beyond  the  ability  of  the  reserve 
to  support  them,  it  raises  the  rate  of  discount,  so  that  a  brake  is  at 
once  put  on  loans — borrowers  are  deterred  by  the  high  discount  rate 
from  renewing  loans  and  existing  loans  are  paid  off,  and  thus  the 
deposits  are  reduced.  Thus  by  a  simple  manipulation  of  the  interest 
rate  the  loans  are  regulated  and  a  proper  relation  is  maintained  between 
the  deposits  and  the  reserve.  Since  that  plan  was  adopted  there  have 
been  no  bank  panics  in  England. 

Second,  owing  to  the  large  percentage  of  reserve  carried,  our  com- 
mercial banks  do  not  create  as  much  working  capital  from  a  given 
amount  of  currency  as  do  the  commercial  banks  of  other  nations.    The 

commercial  banks  of  England  create  about  sixteen  dollars  of  deposits 
to  one  dollar  of  currency  in  bank.  Our  largest  national  banks  in  the 
three  financial  centers  of  New  York  City,  Chicago  and  St.  Louis  can 
create  but  four  dollars,  as  they  are  obliged  to  carrv  a  dead  reserve 
of  25%. 

22 


The  need  of  the  nation  is  for  more  working  capital.  A  good  bank 
check  is  just  as  effective  as  the  currency.  The  business  men  were  not 
crying  for  currency  in  1907 — they  wanted  bank  credit.  It  was  the 
banks  that  cried  for  currency  because  they  could  not  grant  the  credit 
without  obtaining  currency  for  the  insatiable  reserve  .fund.  If  they 
could  have  reduced  the  percentage  of  reserve,  a  vast  quantity  of  cur- 
rency would  instantly  have  been  available  for  loans.  If  the  293  national 
banks  in  the  reserve  cities  had  been  operating  on  a  6%  cash  reserve, 
as  the  5,845  country  national  banks  were  doing,  they  would  have  created 
and  supported  with  the  same  amount  of  currency,  nearly  one  and  one- 
half  billion  dollars  more  deposits. 

The  country  national  banks  with  but  $185,000,000  in  currency 
supported  $2,468,000,000  of  deposits.  The  central  reserve  banks  with 
$281,000,000  in  currency  could  support  but  $1,128,000,000  of  deposits. 
When  the  crash  came  the  country  banks  were  in  as  strong  a  position  as 
the  reserve  city  banks.  A  dead  reserve  does  not  strengthen  a  bank  any, 
while  it  does  cut  down  the  working  capital  the  people  need.  The  busi- 
ness of  the  nation  can  not  continue  to  expand  and  develop  unless  we  have 
more  ''working  capital."  "Working  capital"  means  bank  loans.  Bank 
loans  can  not  be  granted  without  currency  for  the  reserve  fund,  and  as 
currency  can  not  be  created  indefinitely  we  must  cut  down  the  percent- 
age of  reserve  so  as  to  get  larger  results  with  the  currency  we  have. 

THE  REMEDY 

To  remedy  the  existing  ills  of  the  Currency  and  Banking  System, 
therefore,  it  is  necessary  to  devise  a  plan  whereby  (i)  bank  loans  will 
be  controlled,  and  regulated  and  (2)  the  commercial  banks  of  the 
nation  will  be  able  to  operate  on  smaller  reserves. 

It  is  useless  to  attempt  to  provide  sufficient  currency  if  the  bank 
loans  are  allowed  to  expand  indefinitely — currency  could  not  be  created 
fast  enough  to  m.eet  the  demand  for  reserves.  It  is  also  useless  to^ask 
a  banker  to  reduce  his  cash  reserve  unless  he  can  be  shown  where  he 
can  get  sufficient  currency  instantly  to  meet  unusual  demands. 

The  only  conceivable  way  to  adequately  control  bank  loans  and  to 
provide  currency  where  and  when  needed  by  the  banks  so  that  they  may 
safely  operate  on  smaller  cash  reserves  is  by  the  creation  of  a  great 
central  bank,  strong  enough  to  dominate  and  control  the  money  market, 
and  so  organized  and  constituted  that  it  will  not  be  a  mere  private  insti- 
tution for  private  gain,  but  a  great  national  institution  operating  under 
the  supervision  of  the  national  government  and  designed  to  do  two 
things  and  two  things  only,  to-wit :  ( i )  regulate  bank  loans  and  keep 
them  from  expanding  too  far,  thus  regulating  the  amount  of  deposits 
and  maintaining  a  proper  relation  between  deposits  and  reserve ;  and 
(2)  hold  all  of  the  surplus  currency  of  the  nation  for  the  use  of  the 
individual  banks,  so  that  the  utmost  service  can  be  obtained  from  tne 
existing  currency. 

Notwithstanding  a  popular  notion  to  the  contrary,  the  object  of 
such  a  bank  should  not  be  to  inject  more  paper  into  our  circulation ;  we 
have  about  as  much  paper  as  we  can  stand  now.     This  nation  is  not  to 

23 


be  converted  from  a  gold  standard  to  a  paper  standard.  No  commer- 
cial nation  in  the  world  keeps  afloat  as  much  uncovered  paper  and  token 
money  as  we  do,  and  we  shall  invite  commercial  disaster  and  national 
dishonor  by  materially  increasing  our  uncovered  paper  currency.  The 
object  of  the  bank  should  be  to  make  greater  use  of  the  currency  we 
now  have. 

INADEQUACY  OF  THE  U.  S.  INDEPENDENT  TREASURY  SYSTEM 

The  national  government  now  has  a  great  bank  of  its  own  termed 
the  "Independent  Treasury  System,"  through  which  it  handles  its  own 
fiscal  affairs.  The  Treasury  usually  has  $300,000,000  or  more  in  currency 
on  hand.  The  government  frequently  deposits  currency  with  commercial 
banks,  securing  itself  by  taking  collateral,  but  the  banks  claim  that  the 
government  makes  these  deposits  at  times  when  the  banks  do  not  need 
the  currency  and  withdraws  the  deposits  at  the  very  time  that  the  cur- 
rency is  needed  most.  If  the  government  would  reverse  this  process 
and  use  this  vast  fund  intelligently,  it  would  act  as  a  great  safety  valve 
to  the  money  market.  If  the  government  should  deposit  $200,000,000 
in  currency  with  the  banks  with  an  agreement  that  it  be  returned  in 
sixty  or  ninety  days  it  would  be  a  very  satisfactory  emergency  currency. 

But  if  the  national  revenues  fell  below  the  expenditures  and  the  cur- 
rency in  the  Treasury  ran  low,  as  has  happened  many  times  in  the  past, 
then  if  our  banks  were  relying  upon  the  Treasury  to  supply  currency 
they  would  be  disappointed.  Again,  if  the  Treasury  loaned  out  its 
funds  to  the  banks  and  then  found  that  the  banks  would  not  pay  back 
the  currency  on  demand,  the  credit  of  the  government  would  be  im- 
paired. Neither  can  the  Independent  Treasury  system  in  any  way 
control  bank  loans.  Hence  it  is  obvious  that  the  Independent  Treasury 
system  can  not  be  utilized  to  correct  the  defects  in  our  banking  system, 
and  that  a  new  central  bank  must  be  organized. 

CENTRAL  BANK 

But  this  new  central  bank,  in  order  that  it  may  be  strong  enough  to 
dominate  and  control  the  money  market,  must  have  a  gold  reserve  of 
large  proportions.  Where  is  this  gold  to  be  obtained?  If  it  is  drawn 
from  the  banks  it  will  cripple  them.  To  draw  it  from  the  banks  and 
instantly  redeposit  it  with  them,  as  has  been  suggested,  will  not  do  at 
all.  The  right  to  withdraw  currency  from  a  bank  in  times  of  panic 
is  not  a  very  valuable  right. 

The  only  available  supply  of  currency  is  that  in  the  U.  S.  Treasury. 
There  isn't  enough  currency  to  support  both  a  central  bank  and  the 
Independent  Treasury  system.  One  or  the  other  must  be  given  up. 
At  the  time  of  the  money  stringency  the  government  had  lying  idle  in 
its  treasury  one-third  as  much  currency  as  was  in  all  the  banks  in  the 
nation.  The  banks  were  supporting  a  vast  superstructure  of  credit 
for  the  benefit  of  the  people  with  the  currency  they  had ;  the  govern- 
ment was  doing  nothing.  It  is  true  that  the  government  came  to  the 
rescue  of  the  banks  after  the  crisis  and  by  putting  this  currency  in  cir- 
culation helped  to  save  the  situation,  but  there  perhaps  would  have 
been  no  need  of  a  rescue  if  this  vast  amount  of  currency  had  been  in 
circulation  where  it  belonged. 

24 


If  the  government  gives  up  its  sub-treasury  system  and  creates  a 
central  bank,  turning  over  to  such  bank  all  of  the  funds  in  the  Treasury 
and  transacting  its  fiscal  affairs  through  said  bank,  then  the  duty  will 
devolve  upon  such  bank  of  keeping  afloat  and  maintaining  at  par  all 
the  silver  and  paper  currency  issued  by  the  government,  and  for  this 
purpose  it  must  have  an  adequate  gold  reserve,  which  must  be  main- 
tained notwithstanding  the  condition  of  the  national  revenues. 

To  enable  the  individual  banks  to  safely  operate  on  a  smaller  per- 
centage of  cash  reserve,  it  will  be  necessary  that  the  central  bank 
maintain  a  large  reserve  of  gold  with  which  to  supply  the  individual 
banks  on  demand — as  the  banks  will  not  only  require  ordinary  currency 
in  large  volume  at  various  times,  but  will  also  need  the  gold  itself  with 
which  to  redeem  any  national  bank  notes  offered  for  redemption  and 
the  people  must  be  assured  that  the  gold  will  be  forthcoming  on  demand, 
otherv/ise  such  national  bank  notes  will  certainly  be  offered  for  redemp- 
tion in  large  quantities. 

In  order  to  obtain  this  large  reserve  of  gold  and  other  currency 
the  said  central  bank  should  be  the  reservoir  to  which  all  of  the  surplus 
currency  of  the  nation  will  naturally  flow.  The  present  laws  relating 
to  the  payment  in  gold  of  duties  and  customs  should  be  continued,  and 
of  course  all  such  government  revenues  would  go  at  once  to  said  bank. 
In  addition,  all  national  banks  should  be  compelled,  and  all  state  banks 
be  encouraged,  to  keep  their  surplus  reserves  with  said  central  bank. 
The  present  system  of  reserve  and  central  reserve  banks  would  have  to 
be  given  up,  and  all  national  banks  would  be  on  the  same  footing,  each 
operating  on  such  small  cash  reserve  as  it  saw  fit  and  having  on  deposit 
to  its  credit  with  the  central  bank  all  surplus  reserves. 

POWERS  AND  LIMITATIONS  OF  THE  CENTRAL  BANK 

If  the  bank  does  nothing  with  this  fund  of  gold  and  currency  but 
keep  it  safely  until  called  for  it  will  defeat  the  objects  of  its  creation,  as 
it  will  have  no  influence  on  bank  loans  nor  will  it  be  able  to  supply 
currency  when  and  where  needed. 

If  it  is  permitted  to  receive  other  deposits  than  from  the  govern- 
ment and  the  banks,  it  must  hold  a  reserve  against  same,  and  such 
reserve  will  tie  up  currency  that  ought  to  be  used  solely  for  the  benefit 
of  the  general  banking  system.  If  our  banks  are  to  rely  upon  this  cen- 
tral bank  to  such  an  extent  that  they  will  operate  on  a  smaller  percent- 
age of  reserve  than  they  now  deem  safe,  in  the  belief  that  they  can  in- 
stantly withdraw  their  balances  in  currency  on  demand  they  must-  know 
that  the  central  bank  is  being  operated  in  their  benefit,  and  is  not  going 
to  use  its  available  currency  to  support  its  individual  deposits. 

If  it  grants  loans  to  individuals  it  will  open  the  door  to  political 
'favoritism  and  invite  disaster — besides  if  it  is  not  permitted  to  receive 
individual  deposits  it  could  make  a  loan  only  by  paying  over  the  counter 
the  actual  currency  to  be  carried  away  to  be  deposited  in  some  other 
bank. 

In  order  to  dominate  and  largely  control  the  money  market,  regulate 
bank  loans,  and  aid  the  individual  banks  to  expand  their  loans  and  thus 

25 


create  "working  capital,"  the  central  bank  should  use  the  currency  in  its 
possession  solely  for  the  purpose  of  rediscounting  bank  paper.  Any 
bank  could  then  take  the  promissory  notes  of  its.  customers  on  which  it 
had  loaned  money  and  on  presenting  same  to  the  central  bank  for  redis- 
count receive  the  face  of  the  loan,  less  the  discount,  in  currency.  No 
bank  will  rediscount  its  paper,  thus  paying  away  a  large  portion  of  its 
profit,  while  it  has  any  available  currency  of  its  own  on  hand,  but  all 
banks  will  avail  themselves  of  the  rediscount  privilege  when  currency 
runs  low.  X^e  central  bank  will  be  in  position  to  feel  the  financial  pulse 
of  the  nation.  When  it  sees  that  loans  are  expanding  too  rapidly  it 
can  raise  its  rate  of  discount  and  this  will  deter  the  banks  from  redis- 
counting their  notes — if  they  do  rediscount  they  will  charge  their  cus- 
tomers the  higher  rate  and  the  customers  will  naturally  reduce  the  loans 
as  quickly  as  possible  rather  than  pay  too  dearly  for  same. 

As'  the  central  bank  should  only  rediscount  short-time  paper,  that, 
if  renewed,  would  have  to  pay  the  prevailing  rate  of  discount,  it  follows 
that  an  increase  in  the  discount  rate  will  have  the  immediate  effect  of 
causing  loans  to  be  paid  ofl:',  and  the  reserve  of  currency  will  thus  be  at 
once  increased.  In  this  way  the  said  central  bank  will  have  almost 
absolute  control  over  the  bank  loans  of  the  entire  nation.  Each  indi- 
vidual bank  will  also  be  able  to  draw  from  said  central  bank  in  cur- 
rency at  any  time  the  entire  balance  such  bank  has  to  its  credit  with 
such  central  bank  so  that  it  need  not  keep  so  much  cash  in  its  own 
vaults.  This  is  just  what  it  can  not  do  now.  During  the  panic  of 
1907  the  reserve  banks  of  the  nation  were  unable  to  honor  the  checks 
of  the  individual  banks  drawn  against  their  own  credit  balances  and  it 
was  this  failure  of  the  reserve  banks  that  forced  the  general  suspension 
of  specie  payment.  As  a  result  every  bank  in  the  nation  has  learned  its 
lesson  and  is  now  keeping  a  large  cash  reserve  in  its  own  vaults,  thus 
tying  up  currency  and  decreasing  the  supply  of  ''working  capital." 
This  tendency  of  the  banks  must  be  overcome  before  we  can  have  that 
general  revival  of  boom  times  that  we  are  all  looking  for. 

A  central  bank  organized  and  constituted  as  above  described 
would  control  and  regulate  bank  loans,  thus  maintaining  a  proper 
relation  between  bank  deposits  and  reserve,  and  thereby  largely 
obviating  the  cause  of  periodic  panics.  It  would  enable  the  banks  to 
safely  operate  on  smaller  cash  reserves,  and  thus  make  it  possible  to 
create  more  '^working  capital"  for  the  use  of  the  nation.  In  addition, 
it  would  put  to  use  the  vast  accumulation  of  currency  usually  lying 
idle  in  the  vaults  of  the  United  States  Treasury. 

If,  in  Novem.ber,  1906,  a  central  bank  had  been  in  existence,  organ- 
ized on  the  foregoing  plan,  and  having  in  its  vaults  available  for  the  use 
of  all  national  banks  had  they  needed  it,  the  $325,000,000  of  currency 
that  at  that  very  time  was  lying  idle  in  the  vaults  of  the  U.  S.  Treasury, 
then  it  would  have  been  safe  for  all  national  banks  to  operate  on  a 
smaller  percentage  of  cash  reserve.  And  had  the  293  reserve  and  61 
central  reserve  national  banks  in  fact  operated  on  a  cash  reserve  of 
about  8%  as  the  5,843  country  national  banks  and  all  the  state  banks 
were  then  doing  they  could  have  created  and  supported  bank  deposits 
of  $5,615,000,000.     Whereas,  operating,  as  they  did,  on  a  large  per- 


centage  of  dead  and  unusable  cash  reserve,  they  were  able  to  support 
but  $2,501,000,000  of  deposits.  With  the  same  amount  of  currency, 
therefore,  held  in  identically  the  same  manner,  they  could  have  created 
and  supported  over  twice  as  much  ''working  capital" — a  great  deal 
more  than  there  was  any  demand  for^  and  there  would  have  been  no 
''money  stringency." 

LIMIT  UPON  THE  RIGHT  OF  ISSUE 

If,  in  addition,  such  central  bank  could  issue  uncovered  paper  money, 
it  would  be  of  great  advantage  to  trade,  but  this  it  can  not  safely  do 
without  an  adequate  gold  reserve  held  against  such  paper.  It  is  not 
necessary  to  recite  the  arguments  against  greenbackism.  We  simply 
must  not  inject  too  much  uncovered  paper  into  our  circulation.  The 
bank  will  have  the  duty  of  maintaining  the  $346,000,000  of  greenbacks 
now  issued  and  will  receive  from  the  government  but  $150,000,000  in 
gold  with  which  to  do  it.  It  will  be  obliged  to  maintain  at  par  with 
gold  the  $700,000,000  of  silver  and  it  will  have  to  supply  the  national 
banks  with  such  gold  as  they  may  need  from  time  to  time  to  maintain 
the  $665,000,000  of  outstanding  national  bank  notes.  It  is  unsaie,  there- 
fore, for  it  to  issue  a  new  amount  of  uncovered  paper  except  in  emer- 
gencies for  temporary  purposes. 

There  are  times,  however,  when  emergency  currency  is  needed. 
Once  a  year,  at  the  crop-moving  season,  about  $200,000,000  is  needed 
in  currency  for  about  ninety  days.  The  bank  could  probably  safely 
issue  this  amount  for  so  short  a  period,  using  its  general  fund  as  a 
reserve.  There  are  other  times  when,  on  account  of  some  business 
disturbance,  an  unexpected  demand  is  made  on  the  banks,  and  to  meet 
this  perhaps  half  a  billion  of  currency  is  absolutely  needed. 

In  England,  the  bank  of  England  maintains  in  its  redemption  depart- 
ment 6ne  dollar  in  gold  for  every  dollar  of  outstanding  paper  (except 
for  one  issue  of  15,000,000  pounds),  but  in  case  of  severe  emergency  it 
is  empowered  to  issue  up  to  half  a  billion  of  uncovered  paper,  using  the 
gold  in  the  redemption  department  for  a  reserve;  so  that  for  the  time 
being  the  currency  of  England  ceases  to  be  backed  by  100%  in  gold,  the 
entire  gold  on  hand  being  utilized  for  the  maintenance  of  the  entire 
outstanding  paper. 

We  might  in  case  of  emergency  do  the  same  thing. 

The  government  now  has  in  its  vaults  about  $1,000,000,000  in  gold 
against  which  it  has  issued  gold  certificates  to  the  same  amount,  such 
certificates  being  in  efifect  warehouse  receipts  for  gold.  These  certifi- 
cates have  been  considered  in  this  article  as  the  gold  itself.  It  is,  of 
course,  possible  to  make  greater  use  of  this  gold  fund.  The  bank  might 
be  empowered,  in  case  of  great  emergency,  and  with  the  consent  of  the 
United  States  Treasurer,  to  issue  a  half  billion  dollars  of  paper  backed 
by  this  fund.  Until  this  issue  was  redeemed  our  gold  certificates  would 
cease  to  be  warehouse  receipts  and  would  simply  be  uncovered  paper 
backed  by  a  gold  reserve  ©f  66%.  This  sort  of  finance  is  not  to  be 
indulged  in  without  due  consideration,  but  there  are  times  when  emer- 
gency money  must  be  issued  and  it  can't  be  maintained  without  a  gold 
reserve.  The  only  gold  that  will  be  available  at  such  a  fime  will  be  this  re- 
demption fund,  and  it  is  better  to  use  that  than  permit  a  financial  panic. 

27 


SUPPLY  OF  PERMANENT  CURRENCY 

To  increase  the  supply  of  permanent  currency  there  is  no  reason 
why  any  of  the  existing  laws  on  the  subject  should  be  changed.  We 
should  obtain  as  much  as.  possible  of  the  newly-mined  gold,  and  the 
central  bank  will  be  in  a  strong  position  to  obtain  and  retain  this  gold. 
There  is  no  reason  why  the  mints  shoul'd  not  continue  to  turn  out  sub- 
sidiary coin  as  they  are  now  doing.  There  is  no  reason  why  the  national 
banks  should  not  continue  to  issue  national  bank  notes  as  at  present. 
Admitting  that  it  is  absolutely  necessary  to  have  a  certain  quantity  of 
uncovered  paper  currency,  then  no  better  or  safer  paper  can  be  devised 
than  national  bank  notes  as  at  present  issued.  They  are  backed  by  the 
credit  of  the  Individual  banks  issuing  them  and  by  the  credit  of  the 
national  government,  and  as  the  people  have  the  utmost  confidence  in 
them  it  will  require  a  smaller  gold  reserve  to  maintain  them  than  any 
other  notes  that  could  be  devised. 

RECAPITULATION 

To  recapitulate: 

The  business  of  the  nation  can  not  be  carried  on  without  ''working 
capital."  "Working  capital"  consists  principally  of  bank  deposits. 
Bank  deposits  are  created  largely  by  bank  loans.  Bank  loans  can  not 
be  granted  unless  there  is  available  currency  in  the  banks  over  and 
above  the  reserve  fund. 

The  need  of  the  nation  is  for  working  capital.  In  ordinary  times 
the  banks  are  able  to  create  as  much  of  this  as  is  needed,  but  when 
business  expands  too  far  the  limit  of  the  loaning  capacity  of  the  banks 
is  reached,  they  can  grant  no  more  loans  and  business  receives  such  a 
sudden  check  due  to  the  failure  of  the  supply  of  working  capital,  that  a 
financial  panic  follows. 

The  trouble  with  our  present  system  is  that  (i)  there  is  no  method 
of  regulating  bank  loans  and  the  business  men  and  bankers  know  very 
little  about  the  condition  of  the  money  market  outside  of  their  own 
particular  communities,  and  they  rely  blindly  on  the  ability  of  banks 
in  other  localities  to  honor  their  drafts  for  currency;  and  (2)  our  banks 
operate  on  so  large  a  percentage  of  cash  reserve  that  the  quantity  of 
"working  capital"  created  is  unduly  limited. 

To  regulate  and  control  bank  loans  so  that  every  business  man  and 
banker  may  know  the  condition  of  the  money  market  and  the  available 
supply  of  working  capital;  and  to  enable  the  banks  to  operate  on  a 
smaller  percentage  of  cash  reserve,  so  that  they  may  create  more  work- 
ing capital  with  our  existing  currency,  it  is  necessary  to  create  a  central 
bank,  empowered  only : 

1.  To  hold  the  government  funds  and  transact  the  fiscal  afifairs  of 
the  government. 

2.  To  receive  on  deposit  the  surplus  reserves  of  the  banks  of  the 
nation. 

3.  To  rediscount  short-time  bank  paper  and  by  manipulating  the 
rate  of  discount  control  bank  loans  and  maintain  the  reserves. 


4-  To  issue  ninety-day  emergency  paper  once  a  year  for  crop-mov- 
ing purposes  not  exceeding  $200,000,000,  to  be  backed  by  its  general 
fund. 

5.  To  issue  in  time  of  severe  emergency  and  with  the  consent  of  the 
national  government,  half  a  billion  dollars  of  emergency  paper,  backed 
by  the  gold  fund  now  held  for  the  redemption  of  gold  certificates,  and 
by  any  other  gold  available. 

The  only  changes  in  the  existing  laws  necessary  are  to  abolish  the 
provisions  of  the  National  Bank  Act  relating  to  reserves,  and  repeal 
all  laws  relating  to  the  creation  of  the  Independent  Treasury  system. 


APPENDIX 

Extract  from  the  report  of  the  Comptroller  of  the  Currency  for 
1908,  page  212 : 

"No.  55. — Deposits  held  by  national  banks,  amount  and  ratio  of 
lawful  money  reserve  required,  also  amount,  ratio  and  classification  of 
reserve  actually  held  on  November  12,  1906,    *     "^^     *." 


Number 

of 
Banks 

Deposits 

Reserve   Required 

Classfication  of  Reserve  held 

Location  of  Banks 

Ratio 

Amount 

Lawful 
Money 
in  Bank 

Due 

from 

Reserve 

Agents 

Redemp- 
tion 
FuQd 
with 
Treas- 
urer 

November  12, 1906 
Central  Reserve  Cities 
Other  Reserve  Cities . . 
Not  Reserve  Cities  — 

6L 

293 

5,845 

Millions 
1,128.8 
1,372.5 
2,468.5 

P.  Ct. 
25 
25 
15 

Millions 
282.2 
343.1 
370.3 

Millions 
281.8 
167.4 
185.3 

Millions 

160.3 
212.2 

Millions 

3.9 

6.1 

16.6 

Total 

6,199 

4,969.9  1  995.6      634.5      372.5 

26.5 

NOTE. — The  National  Bank  Act  requires  that  banks  in  central 
reserve  cities  (Nev^  York,  Chicago  and  St.  Louis)  shall  hold  a  reserve 
against  deposits  of  25%  of  such  deposits,  and  that  all  of  this  shall  con- 
sist of  currency  in  the  vaults  of  the  banks,  except  that  the  redemption 
fund  with  the  United  States  Treasury  may  be  counted  as  cash  on  hand. 

The  "other  reserve  cities"  are  required  to  keep  a  reserve  of  25% 
against  deposits,  but  only  one-half  of  this,  to-wit,  $12.50  of  every  $100, 
need  be  kept  on  hand  in  the  form  of  currency;  the  balance  may  be  a 
paper  credit  with  some  other  bank. 

The  "not  reserve  cities"  are  required  to  keep  a  reserve  of  15%, 
but  of  this  sum  only  two-thirds,  to-wit,  $6.00  of  every  $100  of  deposits, 
need  be  kept  on  hand  in  the  form  of  currency;  the  balance  may  be  in 
the  form  of  paper  credit  with  some  other  bank. 

The  currency  on  hand  in  national  banks  to  be  counted  as  reserve 
must  consist  of  "lawful  money."  This  excludes  national  bank  notes 
and  some  other  classes  of  currency. 


30 


APPENDIX— Continued 

Extract  from  the  report  of  the  Comptroller  of  the  Currency  for 
1908,  page  31 : 

"For  the  purpose  of  comparison,  a  table  exhibiting  the  principal 
items  of  resources  and  liabilities  of  banks  other  than  national  in  the 
years  '-!«**     1906,  is  submitted  herewith :" 

CONSOLIDATED  RETURNS  FROM  STATE,  SAVINGS.  PRIVATE  BANKS 
AND  LOAN  AND  TRUST  COMPANIES 

Item.  1906. 

Loans $  5,656,832,201 

Bonds 2,790,159,501 

Cash 334,938,185 

Capital  . ; '. 739,163,401 

Surplus  and  undivided  profits 893,679,524 

Deposits 8,159,894,029 

Resources  10,363,350,846 

NOTE. — It  will  be  seen  from  the  above  statement  that  the  actual 
currency  on  hand  was  $334,000,000  against  deposits  of  $8,159,000,000, 
or  about  $4.00  of  currency  for  every  $foo  in  deposits.  A  few  of  the 
States  have  laws  relating  to  reserves  in  vState  banks,  but  the  majority 
of  the  States  are  without  such  laws  and  the  banks  keep  on  hand  such 
reserves  as  they  see  fit,  and  an  analysis  of  the  bank  statements  shows 
that  a  very  large  portion  of  the  currency  kept  on  hand  by  such  banks 
is  other  than  "lawful  money." 

It  will  be  seen  that  the  State  banks,  savings  banks  and  loan  and 
trust  companies  with  about  one-half  as  much  currency  on  hand  as  the 
national  banks  had,  were  able  to  create  and  support  about  twice  as  much 
"working  capital."  ■ 


31 


APPENDIX— Continued 

Extract  from  the  Report  of  the  Comptroller  of  the  Currency  for 
i9o8,  pag^e  46. 

''Distribution  of  Money  in  the  United  States." 


Coin  and  Other 

Coin  and  Other 

Coin  and  Other 

Coin  and 

Money  in 

Treasury 

Mouey  in 

Money  not  in  Treasury 

Year 

other 
Money  in 

as  assets,  a 

Reporting  J 

Banks,  b. 

01 

•  Banks 

the  United 

States 

Amount 

Per  Cent 

Amount 

Per  Cent 

Amount 

Per  Cent 

Per 
Capita 

Millions 

Millions 

Millions 

Millions 

1892 

$1,752.2 

$150.9 

8.60 

$  586.4 

33.48 

$1,014.9 

57.92 

$15.50 

1893 

1,738.8 

142.1 

8.17 

515.9 

29.68 

1,080.8 

62.15 

16.14 

1894 

1,805.0 

144.2 

7.99 

688.9 

38.17 

971.9 

53.84 

14.21 

1895 

1,819.3 

217.4 

11.95 

631.1 

34.69 

970.8 

53.36 

13.89 

1896 

1,799.9 

293.5 

16.31 

531.8 

29.55 

974.6 

54.14 

13.65 

1897 

1,905.9 

265.7 

13.95 

628.2 

32.96 

1,012.0 

53.09 

13.87 

1898 

2,073.5 

235.7 

11.37 

687.7 

33.17 

1,150.1 

55.46 

15.43 

1899 

2,190.0 

286.0 

13.06 

723.2 

33.02 

1,180.8 

53.92 

15.51 

1900 

2,339.7 

284.6 

12.16 

749.9 

32.05 

1,305.2 

55.79 

17.11 

1901 

2,483.1 

307.8 

12.39 

794.9 

32.02 

1,380.4 

55.59 

17.75 

1902 

2,503.2 

313.9 

12.24 

837.9 

32.69 

1,411.4 

55.07 

17.90 

1903 

2,684.7 

317.0 

11.80 

848.0 

31.59 

1,519.7 

56.61 

18.88 

1904 

2,803.6 

284.3 

10.14 

982.9 

35.06 

1,536.3 

54.80 

18.77 

1905 

2,883.1 

295.2 

10.24 

987.8 

34.27 

1,600.1 

55.49 

19.22 

1906 

3,069.9 

333.3 

10.86 

1,010.7 

32.92 

1,725.9 

56.22 

20.39, 

1907 

3,115.6 

342.6 

11.00 

1,106.5 

35.51 

1,666.5 

53.49 

19.36 

1908 

3,378.8 

340.8 

10.08 

1,362.9 

40.34 

1,675.1 

49.58 

19.15 

#  a.    Public  money  in  National  Bank  depositories  to  the  credit  of  the  Treasury  of  the  United 
States  not  included. 

h.    Money  in  Banks  of  Island  possessions  not  included. 


Of   THE 

UNIVERSITY 

OF 

^IFORKiJ 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 
This  book  is  DUE  on  the  last  date  stamped  below. 


NOV    5   1947 


APR  10 1958 


50DF 


LD  21-100m-12,'46(A2012sl6)4120 


JUL  13  1960    . 


?^■.i■» 


^o^yisv 


,f,# 


-D 


^^'?  JAN  20  1963 
REC'D  LD 


INTERL!BRARY 


JUj.  2  5  19B4 


UNIV.  OF  CAL-IF 


LOAN 


,  BERK. 


